Question for Practice;

Data:
Month....................Production (Units)............... ....Transportation Cost(Rs.).
Jan...................................7,000....... ....... ......................1,10,000
Feb...................................8,000....... ....... ......................1,15,000
Mar...................................7,700....... ............... ..............1,11,000
Apr....................................6,000...... ............... .................97,000

Required: Using High & Low Method find
1) Fixed Cost (FC)
2) Variable Cost (VC) per Unit

Solution

VC per unit=(High Cost - Low cost)/(high units - low units)
VC per unit=(1,15,000 - 97,000)/(8,000 - 6,000)
VC per unit=Rs.9 per unit

VC cost for the month of Apr = Units produced * VC per unit=6,000*9=54,000

FC for the month of Apr=TC of Apr-VC of Apr

FC=97,000 - 54,000=43,000

For the cross verification put the value of variabale cost per unit in any other month you will reach at the same fixed amount of Rs.43,000

Suppose we take Feb Month in which production units are 8,000

VC for the month of feb=8,000 * 9=72,000
FC for the month of Feb=TC of Feb - VC of Feb=1,15,000 - 72,000=43,000

Hence proved that our calculation is correct since fixed cost Rs.43,000 remained same for both the months.

Correct answers are :
1) Fixed Cost=Rs.43,000
2) Variable Cost per unit Rs.9 per unit