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High Low Method Cost Analysis

This document contains an example of using the high-low method to determine a cost function from cost and volume data over 30 days. It shows calculating the variable cost per unit and fixed cost using the highest and lowest volume points, then confirms the equation works for another random pair of points. The cost function is of the form Y = Fixed Cost + Variable Cost per Unit * Volume.

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32 views1 page

High Low Method Cost Analysis

This document contains an example of using the high-low method to determine a cost function from cost and volume data over 30 days. It shows calculating the variable cost per unit and fixed cost using the highest and lowest volume points, then confirms the equation works for another random pair of points. The cost function is of the form Y = Fixed Cost + Variable Cost per Unit * Volume.

Uploaded by

yosepjolt
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

HILTON CHAPTER 6

High Low Method Example Problem Solution

Day Total Cost Volume


1 700,000 20,000
2 725,900 21,700
3 690,000 19,300
4 661,000 17,000
5 677,000 16,400
6 714,000 20,800
7 732,300 22,400
8 730,000 23,900
9 765,000 25,500
10 747,400 24,200
11 768,000 26,600
12 773,000 27,000
13 712,500 22,200
14 702,200 20,600
15 699,800 20,100
16 678,000 19,400
17 665,300 19,100
18 685,900 19,800
19 697,200 19,900
20 705,400 21,000
21 708,100 20,800
22 711,000 20,900
23 718,000 21,100
24 723,300 21,500
25 719,600 20,000
26 732,100 21,900
27 744,600 24,400
28 763,000 27,400
29 757,400 25,800
30 752,000 25,200

High Volume 763,000 27,400


Low Volume 677,000 16,400
Difference 86,000 11,000
Variable Cost per unit 7.818182

FC: 763,000 - (27,400 * 7.818182) = 548,782 rounded


Check: 677,000 - (16,400 * 7.818182) - 548,782 rounded
Equation: Y = 548,782 + 7.818182 X

NOTE: EQUATION CHANGES IF DIFFERENT POINTS ARE USED


SELECT TWO RANDOM POINTS
Higher volume 757,400 25,800
Lower volume 661,000 17,000
Difference 96,400 8,800
Variable Cost per unit 10.954545

FC: 757,400 - (25,800 * 10.954545) = 474,773 rounded


Check: 661,000 - (17,000 * 10.954545) = 474,773 rounded
Equation: Y = 474,773 + 10.954545 X

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