Q5RQ - Horngren'S Financial And Managerial Accounting

Question

Describe the three steps of the high-low method.

Step-by-Step Solution

Answer

Step 1: Calculation of variable cost per unit

Step 2: Calculation of fixed cost

Step 3: Creation and use of equation

First step of high-low method

The first step of high-low method is to identify the highest and lowest level of activity and then calculate the variable cost per unit.

Next step is to calculate the fixed cost

Fixed cost can be calculated by subtracting variable cost calculated above from total mixed cost.

Third and the last step of high-low method is creation of equation of mixed cost

Total mixed cost = (Variable cost per unit x Number of units) +Total fixed cost