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

Exercise 19

Smith Glass Co. produces industrial glass. Smith forecasts data using the high-low method and has compiled the following data from prior results:

	2006	2007	2008	2009	2010
Total operating hours	5,683	3,197	4,105	5,056	3,586
Inspection cost ($)	50,457	46,835	53,227	49,734	43,649

Which two years should Smith select for the high-low method analysis and why?

Step 1 of 6

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.