[ko17]

Hello I am trying to determine how to split up a mixed advertising expense on a Selling and administrative budget for the months of sept. and October. The company uses the high low method to determine the variable rate and fixed portion. The company has a beginning balance in the advertising payable from August of 61,250, and the company pays all advertising expenses in the month after it is incurred. The numbers are:
Sales Advertising Expense
High Month: 900,000 75,000
Low Month 300,000 45,000

the method : 75,000 - 45,000 /
900,000 - 300,000 = .05

so .05*900,000 = 45,000

75,000 - 45,000 = 30,000 (fixed cost)

is this correct so far?
If so, do I use the variable rate for the 61,250 from the ad payable?

[rehmanvohra]

I think you are mixing up the expense budget with the cash budget. As far as the expense budget is concerned, the advertising expense may be split between fixed and variable as a control measure, but in the cash budget you would enter the amount to be paid in the next month. In your case the amount of payment will be 61,250

[morgaine300]

I'm not sure what it is you're trying to do because you haven't really said. Rehmanvohra has a point that your payment is just going to be the 61,250. (A payable account and a statement about when it's paid is sort of implying you're working with a payment.)

From the info given, I'm not sure why you need to split it, but since the problem provided that information, I'll assume there's more to the problem that you're stating. $30,000 of it is fixed and the rest is variable. Once you've determined fixed, it stays the same every month -- that's why they call it fixed.