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

Exercise 17

Williams Inc. produces fluorescent lightbulbs for commercial use. The accounting manager is attempting to estimate the total cost for the next quarter using the high-low method. He has compiled data and found the high and low costs are $10,000 and $6,000 and the associated cost drivers are 7,000 and 3,000 packs, respectively. He has also determined the variable cost to be $1.00 per pack. What is the value for a (the fixed quantity)?

Step 1 of 4

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.