Accountancy Forum

High Low Method Calculation Help needed?
An Organization has the following total costs at three activity levels
Activity Level( Units) 8000 12000 15000
Total Costs $ 204,000 $ 250,000 $ 274,000
Variable cost per unit is constant within this activity range and there is a step up of 10 % in the total fixed costs when the activity level exceeds 11,000 units.

What is the total cost at an activity level of 10,000 units?
A. $ 220,000
B. $ 224,000
C. $ 227,000
D. $ 234,000

Variable cost per unit = 8 dollars
Total Fixed cost above 11,000 units = [ 274,000 - ( 15,000 * 8 )] = $ 154,000
Total fixed cost below 11,000 units = (10/11) * 154,000 = $ 140,000
Total cost for 10,000 units = $ 220,000

I want to ask why we divided 10/11 to get the 90 percent of 154,000 . In my point of view 90 percent of 154,000 should be 138600. by multiplying 0.9 * 154,000 = 138600 $ plz help and reply..its just a simple question but am stuck..

hi,
let 140000=x

So fixed cost after upto 11000 units is

x+10%x=154,000
x+0.10x=154,000 (10%/100=.10)
1.10x=154,000
x=154,000/1.10
X=140,000

your suggested answer matches mine. Its a basic concept that cost has risen to 10% of 140,000 and not 10% of 154k,. the right approach is to find out the 10% of 140k and then add it.but as 140k is the missing figure, I simply worked backward. As I have done above and same as u did with another approach but all leads to the same answer.
Just grab the concept.