Fixed and Semi-Variable Costs for M/S Model House LTD

Fixed Costs

Fixed costs are expenses that do not vary with the level of production or sales. They are the costs that a business incurs regardless of how much it produces or sells. In the case of M/S Model House LTD, the fixed cost component is not given explicitly in the question. Therefore, we can assume that fixed costs are not provided or negligible in this scenario.

Semi-Variable Costs

Semi-variable costs, also known as mixed costs, are expenses that have both fixed and variable components. These costs are partly fixed and partly variable, which means they change with the level of production or sales, but not in direct proportion. The semi-variable cost of producing 5000 units for M/S Model House LTD is given as RS 24000, and the semi-variable cost for producing an additional 1000 units is RS 1800.

Calculation of Fixed and Variable Components

To calculate the fixed and variable components of the semi-variable costs, we can use the high-low method. This method uses the highest and lowest levels of production to determine the variable cost per unit and the fixed cost component.

Using the data given in the question, we can calculate the variable cost per unit as follows:

Variable cost per unit = (Semi-variable cost at high level - Semi-variable cost at low level) / (High level - Low level)
= (RS 25800 - RS 24000) / (6000 - 5000)
= RS 1800 / 1000
= RS 1.8

Now that we know the variable cost per unit, we can calculate the fixed cost component as follows:

Fixed cost component = Total semi-variable cost - (Variable cost per unit x Total units produced)
= RS 24000 - (RS 1.8 x 5000)
= RS 24000 - RS 9000
= RS 15000

Therefore, the fixed cost component for M/S Model House LTD is RS 15000, and the variable cost per unit is RS 1.8.