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Dear John,
I hope you are doing good,
Regarding high low method the following question is mentioned in kaplan kit #161 it says:-
The following table shows the number of clients who attended a particular accountancy practice over the last four weeks and the total costs incurred during each of the weeks:Week Number of clients Total costs($)
1 400 36,880
2 440 39,840
3 420 36,800
4 460 40,000
Applying the high low method to the above information, which of teh following could be used to forecast total cost($) from the number of clients expected to attend (where X=the expected number of clients)?
The required to get the variable cost?
my question is why did it use the the following figures $40,000 and $36,880 to get the variable cost per unit in other words why didn’t it use the total cost of 36,800 because its less than the amount used in calculation which is $36,880.
Actually I have confusion about how can I determine the variable cost per unit or service whichever it is but should I use the highest and lowest cost or Cost driver and Why?For the high low method we take the highest and lowest independent variable.
The independent variable is the one that the other depends on. So here, the total cost depends on the number of clients and so the number of clients in the independent variable.
The highest number of clients is 460 and the lowest number is 400 and so we use the costs for those two.
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