Question

ACC702 pplementary Exercises - REVISION Costing using the High-Low Method As a new manager ew manager at a security company, you are trying to determine the cost behaviour typical at the company. You have reviewed the past year's costs and the time spent (measured in hours) for the past year on a month by month basis. You have found from the monthly figures that costs appear 'uniform and regular based on the time spent on each job. The month with the highest hours worked and the lowest hours worked is shown below, along with the respective costs: Recorded volume 1512 Hours 2823 Hours Lowest volume month Highest volume month Related costs $63,072 $103713 Required: a) Use the high-low method to determine the following: a. Variable cost per unit of production a. Fixed cost incurred in the observed period b) The Sales manager has estimated that the following average hours will be worked for the coming months, predict the average costs per month using the variable and fixed costs calculated in a) above: 2374 Hours Predicted Cost: c) If you had more time and could access your computer and your spreadsheet software, what other mathematical technique would give a more accurate estimate of the Variable and Fixed Costs? ACC702 Week 2 - Tutorial Exercises Chapters and

Answer 1

a.)	Variable Cost =	High Activity cost - Low activity cost
		High Activity units - Low activity units
	=	103,713 - 63,072
		2,823 - 1,512
	=	40,641
		1,311
	a. Variable cost per unit= $31
	a. Fixed cost incurred in the observed period = $ 16,200   ( 63,072 - ( 1,512 x 31 ) )

b.)	Predicted costs at 2,374 hours:
	Variable cost =	73,594	(2,374 x 31)
	Add:Fixed Cost =	16,200
	Predicted costs =	$ 89,794

c.)	Other mathematical techniques that may give accurate estimate of the variable & fixed cost includes plotting of fixed cost , variable cost & total cost with comparision to level of units on the graph.