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    High Low Method: - Method For Estimating Fixed and Variable Cost. - Variable Cost

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    shompa
    The document outlines the high-low method for estimating fixed and variable costs, providing an example that calculates a variable cost of $0.80 per patient and fixed cost of $3400 for a hospital. It also presents overhead cost data for a company across multiple months at different activity levels and asks questions about estimating maintenance costs, deriving a cost formula, expressing total overhead in a linear equation, and forecasting costs at a new activity level.

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    High Low Method: - Method For Estimating Fixed and Variable Cost. - Variable Cost

    Uploaded by

    shompa
    226 views7 pages
    The document outlines the high-low method for estimating fixed and variable costs, providing an example that calculates a variable cost of $0.80 per patient and fixed cost of $3400 for a hospital. It also presents overhead cost data for a company across multiple months at different activity levels and asks questions about estimating maintenance costs, deriving a cost formula, expressing total overhead in a linear equation, and forecasting costs at a new activity level.

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    The document outlines the high-low method for estimating fixed and variable costs, providing an example that calculates a variable cost of $0.80 per patient and fixed cost of $3400 for a hospital. It also presents overhead cost data for a company across multiple months at different activity levels and asks questions about estimating maintenance costs, deriving a cost formula, expressing total overhead in a linear equation, and forecasting costs at a new activity level.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    226 views7 pages

    High Low Method: - Method For Estimating Fixed and Variable Cost. - Variable Cost

    Uploaded by

    shompa
    The document outlines the high-low method for estimating fixed and variable costs, providing an example that calculates a variable cost of $0.80 per patient and fixed cost of $3400 for a hospital. It also presents overhead cost data for a company across multiple months at different activity levels and asks questions about estimating maintenance costs, deriving a cost formula, expressing total overhead in a linear equation, and forecasting costs at a new activity level.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 7

    High Low Method

    • Method for estimating Fixed and Variable


    Cost.
    • Variable Cost =
    (Cost at High Level Activity – Cost at Low level Activity)
    (High Activity Level – Low Activity Level)

    • Fixed Cost = Total Cost – Variable Cost


    Particulars Patient-Days Maintenance Cost
    High activity Level (June) 8000 9800
    Low activity Level (March) 5000 7400
    Change 3000 2400
    • Variable Cost = (Changes in Cost / Changes in Activity)
    = (2400/3000)
    = .80 per patient

    • Fixed Cost = Total Cost – Variable Cost element


    = 9800 – (.80 * 8000)
    = 3400

    • Y= 3400 + .80 X ( Y= Total Cost, X= Total Patient-days)


    Review Problem
    1. Use the High Low method to find Fixed and Variable Cost.
    2. Express it in cost formula Y= a + bX
    Month # of Patient Admitted Cost
    May 1800 14700
    June 1900 15200
    July 1700 13700
    August 1600 14000
    September 1500 14300
    October 1300 13100
    November 1100 12800
    December 1500 14600
    Problem
    Nova Company’s total overhead costs at various
    levels of activity are presented below:

    Month Machine Hour Total Overhead Cost


    April 70000 198000
    May 60000 174000
    June 80000 222000
    July 90000 246000
    Continued
    Assume that the total overhead costs above
    consists of utilities, supervisory salaries and
    maintenance. The break down of these costs at
    the 60000 machine hour level of activity is:

    Utilities (variable) 48000


    Supervisory salaries (Fixed) 21000
    Maintenance (Mixed) 105000
    Total Overhead Cost 174000
    Requirement:
    1. Estimate how much of the 246000 of overhead
    cost in July was maintenance cost.
    2. Using high low method, estimate a cost formula
    for maintenance.
    3. Express the company’s total overhead costs in
    the linear equation form.
    4. What overhead cost would you expect to be
    incurred at an operating activity level of 75000
    machine hour?

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