Financial Performance
beavis182
WellKnownRegistered Posts: 130
I am struggling with the high/low methods and working out how to find the fixed costs.
The questions and answers I have so far are.....
Option 1  Increase Prices
Selling price per unit 0.43
Estimated sales in units 1100000
Total costs 438000
Option 2  Reduce prices
Selling price per unit 0.39
Estimated sales units 1500000
Total costs 550000
The answers I have so far to work out the variable cost per unit is......
Units Cost
High 1500000 550000
Low 1100000 438000
Difference 400000 112000
Variable (112000/400000) = 0.28 per unit
I just need to understand how to work out fixed costs based on high sales units and low sales units if anyone can help me? :)
The questions and answers I have so far are.....
Option 1  Increase Prices
Selling price per unit 0.43
Estimated sales in units 1100000
Total costs 438000
Option 2  Reduce prices
Selling price per unit 0.39
Estimated sales units 1500000
Total costs 550000
The answers I have so far to work out the variable cost per unit is......
Units Cost
High 1500000 550000
Low 1100000 438000
Difference 400000 112000
Variable (112000/400000) = 0.28 per unit
I just need to understand how to work out fixed costs based on high sales units and low sales units if anyone can help me? :)
0
Comments

Hiya,
Units Cost
High 1500000 units £550000
Low 1100000 units £ 438000
Variable costs = (550000  438000) / (1500000  1100000) = 112000 / 400000 =£0.28 per unit
Remember the formula:
Y = mX + C where
Y is the total cost
m is the variable cost
X is the quantity or unit
C is the fixed cost
To find the fixed cost which is C you have to make C the subject of the formula,ie,
C = Y  mX
Now working with High 1500000 units £550000 and variable cost per unit £0.28
Y= £550000, m = £0.28 and X = 1500000
C = Y  mX
C = £550000  (0.28 * 1500000) = £550000  £420000 = £ 130000
Therefore fixed cost = £130000
Now you also work with the 1100000 units £ 438000 Variable cost per unit =£0.28
Y= £438000, m = £0.28 and X = 1100000
C = Y  mX
C = £438000  (0.28 * 1100000) = £438000  £308000 = £ 130000
Therefore fixed cost = £130000
Whether you work with the high or low data you will have the same final result for fixed cost.
Hope this helps!
Cheers
Rekha0