ExpertMedium2 marksShort Answer
ACCA · Question 06 · Data analysis and statistical techniques
Section A
TitaniumForge operates a heavy steel forging plant. The total electricity costs recorded at two different activity levels are as follows:
- Highest activity: 15,000 machine hours, Total Cost: $85,000
- Lowest activity: 8,000 machine hours, Total Cost: $57,000
Using the high-low method, calculate the estimated total electricity cost for an activity level of 12,000 machine hours.
(Enter your answer as a whole number without the dollar sign or commas)
Section A
TitaniumForge operates a heavy steel forging plant. The total electricity costs recorded at two different activity levels are as follows:
- Highest activity: 15,000 machine hours, Total Cost: $85,000
- Lowest activity: 8,000 machine hours, Total Cost: $57,000
Using the high-low method, calculate the estimated total electricity cost for an activity level of 12,000 machine hours.
(Enter your answer as a whole number without the dollar sign or commas)
How to approach this question
1. Find variable cost per unit: (Highest Cost - Lowest Cost) / (Highest Activity - Lowest Activity).
2. Find fixed cost: Total Cost - (Variable Cost per unit * Activity level).
3. Calculate total cost for 12,000 hours: Fixed Cost + (Variable Cost per unit * 12,000).
Full Answer
Variable cost per machine hour = ($85,000 - $57,000) / (15,000 - 8,000) = $28,000 / 7,000 = $4 per hour.
Fixed cost = Total cost at high activity - Total variable cost at high activity = $85,000 - (15,000 * $4) = $85,000 - $60,000 = $25,000.
Total cost for 12,000 hours = Fixed cost + (12,000 * Variable cost per hour) = $25,000 + (12,000 * $4) = $25,000 + $48,000 = $73,000.
Common mistakes
Forgetting to add the fixed cost back when calculating the final total cost.
Practice the full ACCA MA — Management Accounting Practice Exam 6
38 questions · hints · full answers · grading
More questions from this exam
Q01**Section A**
Global Wildlife Trust, an international NGO, is deciding whether to expand its con...EasyQ02**Section A**
CloudSync, a rapidly growing SaaS tech startup, monitors the daily server uptime a...EasyQ03**Section A**
AgriGrow operates a network of automated hydroponic farms. The management accounta...MediumQ04**Section A**
A municipal water treatment plant utilizes both financial accounting and managemen...EasyQ05**Section A**
In a boutique consulting firm, management relies heavily on quantitative variance ...Medium