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The following data relates to a company’s overhead cost.
Time Output Overhead cost Price
(units) ($) index
2 years ago 1,000 (output)$3,700(overheads) 121 (index price)
current year 3,000 $13,000 155
Using the high low technique, what is the variable cost per unit (to the nearest $0.01) expressed in current year
prices?
A $3.22
B $4.13
C $4.65
D $5.65
ok chaps lets do this together.this was in december in 2012.application of the high low technique is simple yes,but how do we adjust the overhead cost for the past .2 years to current prices given that the price index(inflation) changed from 121 to 155.I understand we have to index in the current year divided by index in 2 years back multiplied by the overheads during the past 2 years(155/121 *$3700=$4740),but my question is,does division of price indices calculate the magnitude of index change which automatically adjust previous overhead costs?
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