High Low Method Calculation Help needed?

[sikitheguru]

High Low Method Calculation Help needed?
An Organization has the following total costs at three activity levels
Activity Level( Units) 8000 12000 15000
Total Costs $ 204,000 $ 250,000 $ 274,000
Variable cost per unit is constant within this activity range and there is a step up of 10 % in the total fixed costs when the activity level exceeds 11,000 units.

What is the total cost at an activity level of 10,000 units?
A. $ 220,000
B. $ 224,000
C. $ 227,000
D. $ 234,000

Variable cost per unit = 8 dollars
Total Fixed cost above 11,000 units = [ 274,000 - ( 15,000 * 8 )] = $ 154,000
Total fixed cost below 11,000 units = (10/11) * 154,000 = $ 140,000
Total cost for 10,000 units = $ 220,000

<b>I want to ask why we divided 10/11 to get the 90 percent of 154,000 . In my point of view 90 percent of 154,000 should be 138600. by multiplying 0.9 * 154,000 = 138600 $ plz help and reply..its just a simple question but am stuck..</b>

[awaisaftab]

I am totally in against of using high and low method. It does not suit professional accountants. Rather statical methods produce most accurate results. I am unable to understand why accoutants remain reluctant to use quantitative techniques.

[sikitheguru]

Am not a professional accountant am a student . Tell me man why he devided 10/11 to get the 90 percent of 154000 instead of multiplying 0.9 with 154000.
As 10/11 * 154000 = 140,000
90/100 * 154000 = 138600
whereas 10/11 = 0.9090909090

[sikitheguru]

13 times read , but no answer..... BIG Boss where r u????
Help me with that..am waiting in UNi...

[Dard]

The total fixed costs after 11,000 units are 154,000/-
If you read the question, it says the total fixed costs have increased by 10% after an activity level of 11,000 units. That means the amount 154,000/- is 110%. To bring it back to 100% you have to multiply it by 100 and divide it by 110
Here is a simple formula
Amount x (the percentage where you want to go)/(the percentage you are at now)
However i recommend you understand the concept i explained

[sikitheguru]

Thanks Man..u the GURU
Accountancy Forum Zinda BAD [D]

[faisal_desperado]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by awaisaftab</i>
<br />I am totally in against of using high and low method. It does not suit professional accountants. Rather statical methods produce most accurate results. I am unable to understand why accoutants remain reluctant to use quantitative techniques.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Awais,

Let us know how fixed cost or variable cost be arrived at using any other tactics, as you said Statistical tools shall be more viable option than High Low method.

What statistical technique should be applied specially in the case posted by the query?

Regards,

[awaisaftab]

Faisal I am unable to understand why many forum members adopt critical approach in response of any of my post?
Anyhow
You ar a true professional I were not expecting such a question from you. Kindly consult any good book on management and cost accounting.

[faisal_desperado]

Dear Awais,

You have taken my request negatively, irrespective of others' views about you, i understand that you are out of a good members at the forum. I wanted to know your comments about the flaws in using HIgh Low Method, which make other methods more preferable as compare to the earlier, in your sight.

Let me know if i could be assistive to you in any manner.

Best Regards,

Faisal

[kamranACA]

Folks

Just visited this thread. Question was simple but interesting. Good work by Dard.

A joke flashed into memroies after seeing other posts at this thread. If Awais assures me that he willn't mind to see it here, I can share. But certainly not without his NOC.

)

After all he is already having complaints and I don't want to say anything that he may suppose as an act of adding up fuel.

Regards,



Kamran.

[awaisaftab]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by faisal_desperado</i>
<br />Dear Awais,

You have taken my request negatively, irrespective of others' views about you, i understand that you are out of a good members at the forum. I wanted to know your comments about the flaws in using HIgh Low Method, which make other methods more preferable as compare to the earlier, in your sight.

Let me know if i could be assistive to you in any manner.

Best Regards,

Faisal
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">


Dear Faisal,

I am sorry for taking your post negatively. In fact I was mentionioning regression method for calculating and analyzing variable and fixed cost.

[kamranACA]

Awais

Now I am in fact curious. Please let us know how to apply regression method in specific scnerio of the question at this thread.

Regards,


KAMRAN.

[sikitheguru]

hmmm... am the fire starter..lolx.. well let me try that question with Regression method.
hmmmmmmmm...HUH! i tried.. but i cant..
i solved that question like this.. Plz correct me.
X Y XY x²
8000 204000 1632000000 64000000
12000 250000 3000000000 144000000
15000 274000 4110000000 225000000
-------- -------- ---------- -----------
35000 728000 8742000000 433000000

b= 3. 8742000000-35000*728000/3.433000000- (35000)²
= 746000000/74000000
=1.00810... answer is different..
HEY AWAIS AFTAB u the professional plz help me.Waiting for ur solution.