Final answer:
To work out FC (a) using the high-low method, you need data on fixed costs and activity levels for two different periods. Find the variable cost per unit of activity by dividing the difference in total costs by the difference in activity levels. Subtract the variable cost per unit of activity multiplied by the activity level from the total cost of one of the periods to find the fixed cost.
Step-by-step explanation:
To work out FC (a) using the high-low method, we need to have data on the fixed costs and activity levels for two different periods. Once we have that, we can find the difference in total costs between the two periods and the difference in activity levels. Then, we divide the difference in total costs by the difference in activity levels to get the variable cost per unit of activity. Finally, we can calculate the fixed cost by subtracting the variable cost per unit of activity multiplied by the activity level from the total cost of one of the periods.
For example, if we have data for two periods and we know that the total cost for period 1 is $5000 and the activity level is 200 units, and the total cost for period 2 is $7000 and the activity level is 300 units, we can calculate the variable cost per unit of activity by dividing the difference in total costs ($7000 - $5000 = $2000) by the difference in activity levels (300 - 200 = 100). This gives us a variable cost per unit of activity of $2000/100 = $20. To find the fixed cost for period 1, we subtract the variable cost per unit of activity multiplied by the activity level ($20 * 200 = $4000) from the total cost for that period ($5000 - $4000 = $1000).
So, using the high-low method, we can work out FC (a) by using the formula:
Total Cost = Fixed Cost + Variable Cost per unit of activity * Activity Level
In this formula, we know the total cost for one of the periods, the variable cost per unit of activity, and the activity level. By rearranging the formula, we can isolate the fixed cost and calculate FC (a).