In applying the high-low method of cost estimation to mixed costs, how is the total fixed cost estimated?
In applying the high-low method of cost estimation to mixed costs, how is the total fixed cost estimated?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter6: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 4DQ
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In applying the high-low method of cost estimation to mixed costs, how is the total fixed cost estimated?
Expert Solution
Step 1 Concept of mixed cost , variable cost and fixed cost
Mixed cost also called the semi variable cost . Mixed cost contains both fixed and variable cost .
Example - Electricity charges ( Minimum fixed charge plus consumption charge)
Fixed cost - Fixed cost is the cost that remains constant irrespective of the production activity of the entity .
Example - Office rent , Salary to Office staff , Watch man salary etc
Variable cost - Variable cost changes with the change in number of units of production.
Example - Direct Material , Direct labour etc
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