High-Low Method Byrnes Company accumulates the following data concerning a mixed cost, using units produced as the activity level.

Question

High-Low Method

Byrnes Company accumulates the following data concerning a mixed cost, using units produced as the activity level.

	Units Produced	Total Cost
March	9,800	$14,740
April	8,500	13,250
May	7,000	11,100
June	7,600	12,000
July	8,100	12,460

a. Compute the variable-cost and fixed-cost elements using the high-low method.
b. Using the information from your answer to part (a), write the cost formula.
c. Estimate the total cost if the company produces 8,000 units.

Accepted Answer

a. Variable cost: ($14,740 − $11,100) ÷ (9,800 − 7,000) = $1.30 per unit
Fixed cost: $14,740 − ($1.30 × 9,800 units) = $2,000
or $11,100 − ($1.30 × 7,000 units) = $2,000

b. Cost = $2,000 + ($1.30 × units produced)
c. Total cost to produce 8,000 units: $2,000 + $10,400 ($1.30 × 8,000 units) = $12,400

ACTION PLAN
• Determine the highest and lowest levels of activity.

• Compute variable cost per unit as Change in total costs ÷ (High − low activity level) = Variable cost per unit.
• Compute fixed cost as Total cost − (Variable cost per unit × Units produced) = Total fixed cost.

Related exercise material: BE5.4, BE5.5, DO IT! 5.2, E5.3, and E5.5.

Question 5.DI.2: High-Low Method Byrnes Company accumulates the following dat...

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