ACCA examiner's comments

This question relates to study guide reference A3(h).

The high low technique estimates variable cost per unit by looking at the change in costs between the highest and lowest levels of output. The correct answer is A. This can be calculated by finding the change in cost between the highest and lowest output levels not explained by the step in fixed costs ($9,500 -$4,000 -$500 = $5,000) , and dividing by the change in output between the highest and lowest output levels. ($5,000 / (4,000 units - 1,000 units) = $1.67 per unit.

Many candidates incorrectly based their calculations on the change in costs between the highest and lowest levels of cost, and hence selected option D (($10,000 - $4,000)/ (3,000 units - 1,000 units) or C (($10,000 - $4,000 - $500)/ (3,000 units - 1,000 units). This mistake suggests some confusion between the independent variable, output, and the dependent variable, cost.