Question

The Company accumulates the following data concerning a mixed cost, using kilometres as the activity level:

                  Kilometres Driven   Total Cost.       Kilometres Driven                  Total Cost        

January           8,000.                  $14,850           March 4,750                             $12,330         

February         7,510                       14,200             April    8,330                                17,342         

Calculate the fixed cost element using the high-low method. Ignore the money sign.

Answer 1

Solution :

Fixed Cost in April = Total cost in April - (Kilometers in April * Variable cost per km)

= $17,342 - (8,330 Km * $1.4 )

   = $17,342 - $11,662

Fixed cost =$5,680

Working:

Calculation of Variable cost

Highest Kilometer Driven Month = April

Lowest Kilometer Driven Month = March

Variable cost undr High low method = (Total cost in April - Total cost in March) / (Km. in April - kilometer in March)

= ( $17,342 - $12,330) /(8,330 - 4750)

= $5,012 / 3,580

= $1.4 per km