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

Exercise 25

Miller Landscaping is attempting to project costs for future quarters. Miller has compiled data and decided to use the high-low costing method. The low value is $250,000 for 5,000 hours and the high value is $400,000 for 8,000 hours. What is the variable cost per hour?

Step 1 of 4

High – Low method:

High – Low cost estimation is a method which is used to separate costs into fixed cost and variable costs.

The total cost at any level of activity is to be computed by adding variable cost, fixed cost and mixed cost.

The total costs can be computed by using the following equation:

Here:

Y = Total Costs

a = Fixed costs

b = Variable cost per unit

X = Cost driver