Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773



Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem

Identifying Use of the High-Low, Scattergraph, and Least Squares Methods

Consider each of the following independent situations:

  1. a. Shaniqua Boyer just started her new job as controller for St. Matthias General Hospital. She wants to get a feel for the cost behavior of various departments of the hospital. Shaniqua first looks at the radiology department. She has annual data on total cost and the number of procedures that have been run for the past 15 years. However, she knows that the department upgraded its equipment substantially 2 years ago and is doing a wider variety of tests. So, Shaniqua decides to use data for just the past 2 years.
  2. b. Francis Hidalgo is a summer intern in the accounting department of a manufacturing firm. His boss assigned him a special project to determine the cost of manufacturing a special order. Francis needs information on variable and fixed overhead, so he gathers monthly data on overhead cost and machine hours for the past 60 months and enters them into his personal computer. A few keystrokes later, he has information on fixed and variable overhead costs.
  3. c. Ron Wickstead sighed and studied his computer printout again. The results made no sense to him. He seemed to recall that sometimes it helped to visualize the cost relationships. He reached for some graph paper and a pencil.
  4. d. Lois March had hoped that she could find information on the actual cost of promoting new products. Unfortunately, she had spent the weekend going through the files and was only able to find data on the total cost of the sales department by month for the past 3 years. She was also able to figure out the number of new product launches by month for the same time period. Now, she had just 15 minutes before a staff meeting in which she needed to give the vice president of sales an expected cost of the average new product lauch. A light bulb went off in her head, and she reached for paper, pencil, and a calculator.


Determine which of the following cost separation methods in being used: the high-low method, the scattergraph method, or the method of least squares.

To determine

Identify the cost separation method used in the situation.


High Low Method:

The method in which, high and low points of data are used to classify the mixed cost into fixed and variable cost known as high low method. This is one among the three costs of separation methods.

Least Square Method:

Least square method is used to divide mixed cost into fixed and variable costs by using set of data points. Statistically best fitting line is identified for cost separation in this method.

Scattergraph Method:

In scattergraph method, data points are plotted on the graph to visualize the relationship between total cost and output measure.

The cost separation methods used in the given situation are shown below:

SituationCost Separation Method
a.High low method.The Person SB had data of total cost and number of procedures...

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