Question

Williams Ltd manufactures and sells a single product. The selling price is R18. The following information relates to its yearly production and cost data. (Assume that there is no change to the 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 method to identify variable cost per unit and annual fixed costs for the company.
5 marks
2. On the basis of your answers in part (1) above, calculate the breakeven point of the company in both units and sales revenue.

Answer 1

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