High - low method of cost estimation, Cost Accounting

Assignment Help:

High - Low Method of Cost Estimation

Now, cost estimation is based upon the relationship between past level and past cost of activity. Variable cost is based on the relationship between costs at the lowest level of activity and the highest level of activity. The difference in cost among low and high activity level is considered to be the net variable cost from that the unit variable cost can be computed by dividing it with the change in output level. This is shown underneath as:

 "Total Variable Cost = Cost at high activity level - Cost at low activity level"

Hence,

Unit Variable cost = Variable cost/ Output Units

= (Cost at high level activity - cost at low level activity)/ (Units at high activity level - units at low activity level)

The variable cost per unit so estimated forms the 'b' of the straight line equation stated earlier.  Via substituting 'b' into the equation, we can acquire 'a', the fixed cost.


Related Discussions:- High - low method of cost estimation

Prepare trial balance for transactions, Encik Farid, a sole trader, started...

Encik Farid, a sole trader, started his business on 1 May 2010 under the name Farid Enterprise. The following are his business transactions for the month of May a. Encik Farid b

Compute the break even point, Park & Morgan, a law firm, is considering ope...

Park & Morgan, a law firm, is considering opening a legal clinic for midde- and low income clients. The clinic would bill at a rate if $18 per hour. It would employ law students as

Material costs, Material Costs Material refers to each physical input ...

Material Costs Material refers to each physical input into the production procedure. They involve the giving as: Raw material refers to bought in material that is used

Determine internal rate of return and cash flow statement , A local deliver...

A local delivery company has purchased a delivery truck for $15,000.  The truck will be depreciated under MACRS as a five year property.  The trucks market value (salvage value)

Analysis of prime cost and overhead variances, You are required to conduct ...

You are required to conduct a detailed analysis of all the prime cost and overhead variances. You must create a fictitious company (and a fictitious cost object) which has at least

Difference, difference between diffrential cost and marginal cost

difference between diffrential cost and marginal cost

Optimal profit maximizing pricing strategy, Now assume that it is possible ...

Now assume that it is possible to distinguish consumer types one and two and there are no consumers of type three and the firm can charge a two part tariff. What would the optimal

Advantages of standard costing, Advantages of Standard Costing 1. Man...

Advantages of Standard Costing 1. Management via Exception: the standard costing is an example for management via exception. By studying the variances, management's attentio

Budgeted, Question: Yamba Home Products is just beginning its fourth quar...

Question: Yamba Home Products is just beginning its fourth quarter, in which peak sales occur. The company has requested a $12,000, 90-day loan from its bank to help meet cash re

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd