Question

Felix & Co. reports the following information about its unit sales and cost of sales.

Period		Units Sold				Cost of Sales					Period				Units Sold				Cost of Sales
1			0				$	2,640				6				2,140				$	6,492
2			540					3,612				7				2,540					7,212
3			940					4,332				8				2,940					7,932
4			1,340					5,052				9				3,340					8,652
5			1,740					5,772				10				3,740					9,372

Hint: (Draw an estimated line of cost behavior using a scatter diagram offline.)

Complete the below table to calculate the fixed cost and variable cost of sales by using the high-low method.

Felix & Co. reports the following information about its unit sales and cost of sales.

Period		Units Sold				Cost of Sales					Period				Units Sold				Cost of Sales
1			0				$	2,640				6				2,140				$	6,492
2			540					3,612				7				2,540					7,212
3			940					4,332				8				2,940					7,932
4			1,340					5,052				9				3,340					8,652
5			1,740					5,772				10				3,740					9,372

Hint: (Draw an estimated line of cost behavior using a scatter diagram offline.)

Complete the below table to calculate the fixed cost and variable cost of sales by using the high-low method.

High-Low method - Calculation of variable cost per unit 0 High-Low method - Calculation of fixed costs Total cost at the high point Variable costs at the high point: Volume at the high point: Variable cost per unit Total variable costs at the high point Total fixed costs Total cost at the low point Variable costs at the low point: Volume at the low point: Variable cost per unit Total variable costs at the low point Total fixed costs

Answer 1

Answer:

High-Low method - Calculation of variable cost per unit

Change in cost	Cost at high point minus cost at low point	6,732	Variable cost per unit =	1.8
Change in volume	Volume at high point minus volume at low point	3,740

High-Low method - Calculation of fixed costs

High-Low method - Calculation of fixed costs
Total costs at the high point		9,372
Variable costs at high point
Volume at the high point:	3,740
Variable cost per unit	1.8
Total variable costs at the high point		(6,732)
Total fixedcosts		2,640
Total costs at the low point		2,640
Variable costs at the low point:
Volume at the low point:	0
Variable cost per unit	1.8
Total variable costs at the low point		0
Total fixed costs		2,640

Calculation:

To calculate the variable cost per unit, we need to divide the Change in cost with Change in units.
In the High-low method, the fixed costs and variable costs are estimated as below:

Variable cost per unit = Change in cost/Change in units = (9,372 - 2,640) / (3,740 - 0) = 6,732/3,740 = 1.80

Using either MS Excel or manually draw the scatter diagram. We need to give the Cost of Sales in the vertical axis and the units sold in horizontal axis. The graphical representation will be similar to the below one:

The yield of fixed cost is calaculated as below:

We need to find it in both high point and low point.

Total costs at the high point  = 9,372

Variable costs at the high point = Volume at the high point * Variable cost per unit = 3,740 * 1.80 = 6,732

So deducting the variable cost from the total cost gives the fixed cost = Total costs at the high point - Variable costs at the high point = 9,372 - 6,732 = 2,640

Total costs at the low point  = 2,640

Variable costs at the low point = Volume at the low point * Variable cost per unit = 0 * 1.80 = 0

So deducting the variable cost from the total cost gives the fixed cost = Total costs at the low point - Variable costs at the low point = 2,640 - 0 = 2,640

The high-low method yields $2,640 as fixed costs and variable costs per unit of 1.80.