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-   -   High low method to calculate fixed cost (https://www.askmehelpdesk.com/showthread.php?t=477162)

  • Jun 7, 2010, 02:05 AM
    bannie
    High low method to calculate fixed cost
    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.
  • Jun 7, 2010, 10:04 AM
    hamzashakaa
    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
  • Feb 19, 2011, 07:08 PM
    jutkasuzana
    Comment on hamzashakaa's post
    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.
  • Jul 11, 2012, 08:51 AM
    Theroro
    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

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