High-Low Method

VC/activity = Costs @ HLA - Costs @ LLA / HLA-LLA

HLA - highest level of activity

LLA - lowest level of activity

When it comes to HLA and LLA, always choose the level of activity.

Straight Problems:
Problem No. 1
a. graph 7
b. graph 1
c. graph 6
d. graph 3
e. graph 3

Problem No. 2
1. 29,600 ; 2.5
2. 43,100

Problem No. 3
1. 4 ; 96K
2. Y=96K+4X
3. 536K

y=a+bx

y = dependent variable or total cost

a = Intercept or total fixed cost
b = slope or variable cost per unit
x = indeprendent variable or the level of activity or cost driver.

Problem No. 4
If HLA or LLA have the same level, use the most recent information.
1. y=4K+.4X
2. 7K

Problem No. 5
1. 7 ; 270K
2. 336,150

Problem No. 6
1. -10K possible because High Low is not accurate
2. November - 35, 20K
3. (1750*35)+20K = 81,250.

LEAST-SQUARE or REGRESSION ANALYSIS

y = a + bx
Eq. 1: Ey = na + bEx
Eq. 2: Exy = aEx + bEx2

Problem No. 7:
Y = 180+7.03X

Problem No. 8
1. 38K
2. 5.75
3. 66,750
4. 85%

Note:
R square - explains the strength of the relationship between dependent and
independent variable.
The closer the R square is to 1 or 100%, the stronger the relationship
between dependent
Observations- number of data points.
Constant = fixed cost
Coefficient = variable cost
Standard error = measures the accuracy with which a sample distribution represents
a population by using a standard deviation.

Problem No. 9
1. 6K

Problem No. 10
2.8M-60KX = (2.3M-50KX)1.25
2.8M-60KX = 2.875K-62.5KX
2.5KX = 75K
X = 30

FC of 60K = 1M
FC of 50K = 800K

MCQ:
1. B
2. D
3. D
4. C
5. B
6. A
7. C
8. C - should be between -1 to +1, should not exceed 1
9. C
10. E
11. B
12. A
13. A
14. B
15. C
16. B
17. B
18. D
19. B
20. B
21. A
22. C
23. B
24. D
25. B
26. A
27. A
28. B
29. A
30. D