When using the high low method the estimated line of cost behavior connects the
What is the High-Low method formula?
The high-low method, as the name indicates, uses two extreme data points to determine the values of a (the fixed cost portion) and b (the variable rate) in the equation Y = a + bX. The extreme data points are the highest representative X − Y pair and the lowest representative X − Y pair.
How do you find the intercept using the high-low method?
Steps in Performing the High-Low Method
The high-low method can be done graphically by plotting and connecting the lowest point of activity and the highest point of activity. The y-intercept (value of y when x is zero) would be equal to the fixed cost.
What method is likely to yield the most precise estimated line of cost behavior?
While the total amount of variable cost changes with the level of production, variable cost per unit remains constant as volume changes. The method most likely to produce the most precise line of cost behavior and require the least amount of judgment is the scatter diagram.
What is high low method in cost accounting?
In cost accounting, the high-low method is a way of attempting to separate out fixed and variable costs given a limited amount of data. The high-low method involves taking the highest level of activity and the lowest level of activity and comparing the total costs at each level.
When using high low method What is the change in cost?
The high-low method computes the variable cost rate by dividing the change in the total costs by the change in the number of units of manufactured. In other words, the $4,800 change in total costs is divided by the change in units of 300 to yield the variable cost rate of $16 per unit of product.
What is the High-Low method quizlet?
high-low method is a method of separating mixed costs into fixed and variable components by using just the high and low data points. high point cost- low point cost/ high point output- low point output. high and low points are identified by looking at the activity levels and not the costs.
When using the High-Low method fixed costs are calculated after variable costs are determined?
When using the high-low method, fixed costs are calculated after variable costs are determined. Costs that have already been incurred and can not be changed by decisions made in the current period or future periods. The cost of producing one more unit.
When using the High-Low method if the high or low levels?
As long as you have the data required (which is only two data values), then you’re good to go. The high-low method is best used if the level of activity and the costs that come with it have a linear relationship.
Which of the following is an advantage of the high low method?
Informal Analysis
One advantage of the high-low method is the lack of formality required. The accountant can analyze these numbers using data from the monthly expenses and the activity level. He does not need to contact anyone outside of the company to determine the fixed expenses or the variable rate per unit.
What is step cost?
Step costs are expenses that are constant for a given level of activity, but increase or decrease once a threshold is crossed. Step costs change disproportionately when production levels of a manufacturer, or activity levels of any enterprise, increase or decrease.
What does the coefficient of determination r tell you quizlet?
What does the Coefficient of Determination tell us? It tells us the percentage of total variation in the dependent variable that is explained by the independent variable. For example, an R2 value of 0.63 indicates that the variation of the ind variable (X) explains 63% of the variation in the dep variable (Y).
What are the benefits of using the high low method for measuring cost behavior?
Advantages of the High-Low Method
The high-low method is an easy way to segregate fixed and variable costs. By only requiring two data values and some algebra, cost accountants can quickly and easily determine information about cost behavior.
What is the importance of high low method?
Definition. The high-low method is a quick and easy method of calculating the cost curve of production. When using this approach, the accountant identifies the highest and lowest production levels during a fixed time frame and finds the total manufacturing costs associated with these production levels.
What are the benefits and disadvantages of using the high low method for measuring cost behavior?
What are the advantages of High Low method?
| Advantages of high low method | |
|---|---|
| Easy to calculation | The separation between variable and fixed cost will not require any complex data or calculation. We only need the total production and total mixed cost. |
How does the high-low method and formula assist business?
It compares the highest level of activity and the lowest level of activity and then compares cost at each level. This is a very important concept in cost accounting and is very is useful in determining fixed and variable costs related to the product, machinery, etc. and also used in budgeting activities.
When the level of activity increases within the relevant range How does each of the following change?
If the level of activity increases within the relevant range then the fixed cost per unit will decrease. If the level of activity increases within the relevant range then the total cost per unit will increase.
How is the engineering cost estimating method used?
Based on the system’s specifications, engineers estimate the direct labor and material costs of a work package. In calculating labor costs, company or industry standards are often used to estimate what labor categories are required and how many hours will be required for the task.
Which step is performed first when using the High-Low method?
The first step to using the high-low method is to identify which values are the company’s highest and lowest units produced and their associated costs.
When the level of activity decreases within the relevant range the fixed cost per unit will quizlet?
When the level of activity decreases within the relevant range, the fixed cost per unit will: increase. One full-time clerical worker is needed for every 750 accounts receivable.
When activity level is expected to decline within the relevant range What will be the anticipated effects on fixed cost per unit and variable cost per unit?
When the activity level is expected to decline within the relevant range, the fixed costs per unit would be expected to increase while variable costs…
When applying the high low method the unit variable cost of a mixed cost is calculated before the fixed cost?
36 Cards in this Set
| An activity index identifies the activity that has a causal relationship with a particular cost. | True |
|---|---|
| When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element. | True |