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The following shows the total overhead costs for given levels of a company’s total output.
Cost Output
4,000 1,000
7,000 2,000
10,000 3,000
9,500 4,000
A step up in fixed costs of $500 occurs at an output level of 3,500 units.
What would be the variable overhead cost per unit (to the nearest $0.01) using the high low technique?
Answer examiners 1.67I am confused that semi variable cost has two cost fixed and variable.
Fixed is changing as step of 500 so how there is decrease in total costs in highest activity?That is one of the problems with the high low method – that the relationship might not be exactly linear (which is why regression analysis is a better approach).
However since the question specifically asks for the high low method to be used, we take (as always) simply the highest and lowest levels of output and what happens in between is irrelevant.
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