# high low method

This topic contains 7 replies, has 2 voices, and was last updated by  John Moffat 10 months, 2 weeks ago.

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• josy87
Participant

A B C D

total cost 214,559 239,970 243,183 259,541

Output 64,200 79,350 86,170 85,620

uses high low method to establish a function y=a+bx

I used high 86,170 but the right answer is with high output 85, 620. I’m confused, I thought we should consider output not cost.

John Moffat
Keymaster

You are correct – we use the highest and lowest levels of activity (i.e. the output in this case).

(I hope this is not one of my examples, because if it is then I need to correct it!!)

josy87
Participant

BPP

John Moffat
Keymaster

Well assuming that you have typed it correctly, then they have made a mistake.
They are not perfect

josy87
Participant

You’re right Sir.
I have another problem.

Opening inventory X 5000kg \$4
Opening inventory M 3000 units

we need 3kg of X to make one M. Sales of M 48 000 throughout the year.

closing inventory X : one month’s worth of production.
closing inventory M : two month’s worth of sales

production X 53000 units
Materials X required for production 159,000kg

What is the material X purchase budget?

John Moffat
Keymaster

Opening inventory of X is 5000 kg
Material required for production is 159,000 kg
Closing inventory is 159,000/12 = 13250 kg.
So purchases are 158000+13250-5000 kg.
The cost is \$4 per kg.

josy87
Participant

Thanks Sir I got the same answer:
159000+13250-5000=167250.

but the answer in the book is different that ‘s why i was confused.

96000/12 + 159000 – 5000 = 162000 kg

I struggled to get 96000 but it seems like it’s (48000*2 ). I don’t know why!!!

BPP Budgeting page 199

John Moffat
Keymaster

It is not correct – either there is a misprint in the question or in the answer.

I do not have the BPP books.

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