View Full Version : High low method to calculate fixed cost
bannie
Jun 7, 2010, 02:05 AM
Suppose you have two levels of activities and costs as follows:
Highest level of activity is 10,000 lowest is 6,000.
Highest cost is 35,000 while lowest cost is 27,000.
Use the high low method to calculate the fixed cost.
hamzashakaa
Jun 7, 2010, 10:04 AM
I will not answer your question but here is an example:
Suppose you have two levels of activities and costs as follows:
Activity (Machine hours) Total Cost
1,000,000 $80,000
2,000,000 $150,000
Variable cost per unit= Difference between the highest cost and the lowest cost divided by the difference in the highest level of activity and the lowest level
(150000-80000)/(2000000-1000000)=0.07
multiply the rate by the hifhest or lowest level of activity. Lets multiply it by the highest level of activity (0.07*2000000)=140000 and deduct the amount from the highest cost (150000-140000)=10000 so the fixed cost is 10000
jutkasuzana
Feb 19, 2011, 07:08 PM
Thank you so much. I read my school book 100 times and still couldn't understand than I read your instructions and it was as easy as possible.
Theroro
Jul 11, 2012, 08:51 AM
variable cost per unit =Highest Cost -Lowest cost/Highest units-lowest units
= 35,000- 27,000 / 10,000-6,000
= 8,000 / 4,000
= $2
variable cost for producing10,000units will be 10,000*2= $20,000
total cost =Fixed cost + total variable cost
using highest activity level I e 10,000 units we substitute the known figures
35,000=Fixed Cost +20,000
Fixed Cost =35,000-20000
=$15,000