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hello sir… i have practiced both (high low method and index number ) separately but now struggling with this topic as it is completely new… please help me
output unit overhead cost $ price index
3 years ago 2000 8800 132current year 5000 31000 164
using high low method what is the variable cost per unit? (ans is 6.69)
It is a normal high low problem, except that you cannot compare 31000 with 8800 directly because the costs will be higher now than they were three years ago.
So…all you need to do is restate the cost 3 years ago in todays prices:
8800 x 164/132 = 10933Now it is normal high/low.
The difference in cost (at todays prices) is 31000 – 10933 = 20067
This is the extra variable cost of an extra 3000 units (5000 – 2000).
So the variable cost per unit is 20067 / 3000 = 6.69
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