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Williams Ltd manufactures and sells a single product. The selling price is R18. The following information...

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Accounting

Williams Ltd manufactures and sells a single product. Theselling price is R18. The following information relates to itsyearly production and cost data. (Assume that there is no change tothe stock level of the company.)
Unit Total
Year Volume Cost R
1 300 000 4 000 000
2 150 000 2 800 000
3 420 000 6 600 000
4 280 000 3 900 000
5 230 000 3 200 000
6 120 000 2 100 000
Required:
1. Based on the above cost and volume data, use the high–low methodto identify variable cost per unit and annual fixed costs for thecompany.
5 marks
2. On the basis of your answers in part (1) above, calculate thebreakeven point of the company in both units and sales revenue.

Answer & Explanation Solved by verified expert
4.0 Ratings (807 Votes)

1
Highest Cost                 6,600,000
Lowest Cost                 2,100,000
Difference                 4,500,000
Highest Activity                   420,000
Lowest Activity                   120,000
Difference                   300,000
Variable cost per unit = Divide the difference in the cost by the difference in the activity
= 4,500,000/300,000
= 15.00
Highest Lowest
Variable cost                 6,300,000         1,800,000
Fixed Cost                   300,000            300,000
Total Cost                 6,600,000         2,100,000
2 Per Unit
Sales 18
Less: Variable cost 15
Contribution margin 3
Fixed cost                   300,000
Break even point = Fixed cost/ Contribution margin per unit
= 300,000 / 3
=                   100,000 units
Sales Revenue at Break even point = 100,000 x 18 = 1,800,000

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