Example of Variable Cost and Fixed Cost
High-Low Method Steps and Example
Step 1: Determine the highest and
lowest
activity
and
the
costs
associated thereunto.
Step 3: Obtain the TOTAL FIXED COST
by
removing
the
variable
cost
component in the total costs.
Step 2: Obtain the VARIABLE COST
PER UNIT by dividing the change in
cost over the change in activity.
How much is the total maintenance
cost at 8,200 machine hourse?
Where:
y = total cost
a = total fixed cost
b = variable cost per unit
x = volume of activity
Method of Least Square Steps and Example
Step 1: Prepare a table calculating
x (activity), y (total cost), xy,
and x2.
Step 2: Substitute the computed
amounts in the following equation
to get VC/unit.
Step
3:
Substitute
b
to
any
equation to get a (fixed cost).