Question

High-Low Method

Apply the high-low method of cost analysis to the three cost data groups shown below.

Volume (applicable to each group)	Group A Costs	Group B Costs	Group C Costs
2,000	$5,200	$2,000	$4,800
12,000	25,200	12,000	4,800
16,000	33,200	16,000	4,800
20,000	41,200	20,000	4,800

What cost behavior patterns are apparent? Express each as a cost formula: Total cost = Fixed costs + (Variable cost x Volume).

Group	Fixed costs	+	(Variable cost	x Volume)
A	Answer	+	Answer	x Volume
B	Answer	+	Answer	x Volume
C	Answer	+	Answer	x Volume

Answer 1

variable cost per unit = (41200-5200)/18000 = 2': Fixed cost = 41200-(20000*2) = 1200

Variable cost per unit = (20000-2000)/18000 = 1; Fixed cost = 20000-20000 = 0

What cost behavior patterns are apparent? Express each as a cost formula: Total cost = Fixed costs + (Variable cost x Volume).

Group	Fixed costs	+	(Variable cost	x Volume)
A	1200	+	2	*X
B	0	+	1	*X
C	4800	+	0	*X