High low method

This topic has 5 replies, 2 voices, and was last updated 4 years ago by John Moffat.

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September 3, 2021 at 10:22 am #634112

johnbriane
Member

Sir
With regards to step cost in high low method

When we do questions
Why do we deduct the step cost from the

Formula of calculating the variable cost per unit?

September 3, 2021 at 11:21 am #634126

John Moffat
Keymaster

Because part if the increase in the total cost is due to the increase in the fixed cost and it is only the remainder of the increase that is an increase in the variable cost due to more units being produced.

September 3, 2021 at 11:33 am #634132

johnbriane
Member

Uhmm thank you sir
But still I’m puzzled somewhat ….

Yes of course part of the increase is due to the increase in fixed costs

Agree with that sir

But why do we have to deduct it from the numerator of the formula of vc.

September 3, 2021 at 4:19 pm #634159

John Moffat
Keymaster

So that we are just left with the increase in the variable cost.

September 3, 2021 at 4:41 pm #634170

johnbriane
Member

Ohh I think I got it now sir

Whenever we do highlow method
Step up costs will not be considered at the time of calculating the variable cost per unit

Because
As Step up cost is an additional fixed cost
We will treat it differently after we calculate the variable cost per unit

September 3, 2021 at 4:59 pm #634181

John Moffat
Keymaster

That is correct.
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