Question

Alpha Co. Ltd has incurred total costs of $150,000 for producing 500 units of output in April 2019 and at 3,000 units of output be $400,000 in September 2019. Calculate variable and fixed costs, respectively by using high-low method.

Answer 1

Solution :

Step 1 : Variable Cost per Unit

Variable Cost per Unit as per High Low Cost Method = (Highest Cost - Lowet Cost) / Units of Highest Cost - Units of Lowest Cost)

= ($ 400,000 - $ 150,000) / (3,000 Units - 500 Units)

= $ 250,000 / 2,500 Units

= $ 100 per Unit

Step 2 : Bifurcation of Fixed and Variable Costs

Fixed Cost =  Total Cost - Variable Cost

	April	September
Total Cost	$ 150,000	$ 400,000
Total Variable Cost (Units * $ 100)	$ 50,000	$ 300,000
Fixed Cost	$ 100,000	$ 100,000

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