Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 15

Wallace Heating is attempting to estimate the production cost for heating ducts for the coming year using the high-low method. The cost driver is number of labor-hours. Wallace determines that the high and low costs are $25,830 and $18,414, respectively, and the values for the cost driver are 3,495 and 1,958 hours, respectively. What is the variable cost per hour?

Step 1 of 3

High-low method

This method is particular used in the cost accounts to separate the fixed cost and the variable cost from the total cost. Under this method highest level of activity and the lowest level of activity is taken and comparing the total cost at each level. Under this first we determine the variable cost per unit by applying formulae and then we calculate fixed cost and accordingly decision are taken from the result.