How do you find the fixed and variable cost using the high-low method?
How do you find the fixed and variable cost using the high-low method?
The formula for variable cost in this method is given by:
- Variable Cost Per Unit = (Highest Activity Cost – Lowest Activity Cost) / (Highest Activity Units – Lowest Activity Units)
- Fixed Cost = Highest Activity Cost – (Variable Cost Per Units * Highest Activity Units)
What is high-Low Method example?
Multiply the variable cost per unit (step 2) by the number of units expected to be produced in May to work out the total variable cost for the month….High-low method example.
| Cost | Units | |
|---|---|---|
| January | $60,000 | 10,000 |
| February | $40,000 | 7,500 |
| March | $50,000 | 6,000 |
| April | $55,000 | 5,500 |
How do you calculate fixed cost and variable cost examples?
You can use this fixed cost formula to help.
- Fixed costs = Total production costs — (Variable cost per unit * Number of units produced)
- $4,000 total production costs — ($3 * 1,000 tacos) = $1,000 fixed cost.
- Average fixed cost = Total fixed cost / Total number of units produced.
What is high-low method formula?
To solve this using the high-low method formula, subtract the lower cost from the higher cost to get a numerator of $27,675, then subtract the lowest number of units from the highest quantity to get a denominator of 22,500 units. Divide the numerator by the denominator to get an estimated cost of $1.23 per unit.
What does the high-low method calculate?
The high-low method is used to calculate the variable and fixed cost of a product or entity with mixed costs. It considers the total dollars of the mixed costs at the highest volume of activity and the total dollars of the mixed costs at the lowest volume of activity.
How do you calculate high-Low method?
How do I calculate the fixed cost using the high-low method?
- Find the highest activity cost and the highest activity unit of operation.
- Multiply the variable cost per unit by the highest activity unit.
- Subtract the product of the multiplication in step 2 from the highest activity cost.
- The result is the fixed cost.
What is fixed cost example?
What Is the Difference Between Fixed Cost and Variable Cost?
| Fixed Costs | |
|---|---|
| Nature | Fixed costs are time-related i.e. they remain constant for a period of time. |
| Examples | Depreciation, interest paid on capital, rent, salary, property taxes, insurance premium, etc. |
How do you calculate fixed cost per unit?
Calculate fixed cost per unit by dividing the total fixed cost by the number of units for sale. For example, say ABC Dolls has 6,000 dolls available for customer purchase. To determine the average fixed cost, divide $85,200 (the total fixed cost) by 6,000 (the number of units for sale).