Page 464 - F2 - MA Integrated Workbook STUDENT 2018-19

Chapter 18

Example 5

Consider the following data for a semi-variable cost:
Activity level Cost incurred

Month (units) ($)
Quarter 1 10,000 38,300

Quarter 2 12,000 42,700
Quarter 3 9,000 35,700

Quarter 4 14,000 47,200

Calculate the variable cost per unit by selecting the highest and lowest activity
levels.

Calculate the variable cost per unit:
Change in cost
Variable cost = ––––––––––––––––––
Change in activity level

$47,200 – $35,700
So, variable cost = –––––––––––––––––– = $2.30
14,000 – 9,000

Substituting this back in to the data for Quarter 3, we can calculate the fixed
cost:

$
Total cost 35,700

Variable cost (9,000 units × $2.30) 20,700

————
Therefore, fixed cost $15,000
————

The total cost at different activity levels can then be estimated:

Total cost = total fixed cost + total variable cost

Total cost for 11,000 units = $15,000 + ($2.30 × 11,000) = $40,300

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