High-Low method

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February 24, 2017 at 4:53 am #373955
mika84
Member
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Thank you very much for your help.
One more question.
If the table shows:
Overhead costs Output volume
7000 9400
5688 7600
6334 8500
5446 7300
Here the lowest OC corresponds with lowest OL
But what if:
Overhead costs Output volume
7000 8100
5688 7600
6334 8500
5446 7300
Please confirm, what is the the right way of arriving at VC:
(8500-7300)/(7000-5446) and FC= (7000 – VC*8100)
or:
(8500-7300)/(6334-5446) and FC= (6334 – VC*8500)
I listened to your lectures, but please explain, if I something is missed, because I am really confused, adding to this pre-exam stress, I might just not see the simple things.
Thank you.
February 24, 2017 at 6:45 am #373963
John Moffat
Keymaster
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Since the cost depends on the output volume, you take the highest and lowest output volume and the associated costs.
So it is (8500-7300)/(6334-5446) and FC= (6334 – VC*8500)
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