COST ACCOUNTING AND CONTROL

Topic 2: Cost Behavior

NAME: (surname first) PARIÑA, Ma. Laurhie Mae S. SCORE:__________________

YR./ SEC.: AISP01 DATE: April 19, 2023

Part I. High and Low Points Method.

A controller is interested in analyzing the fixed and variable costs of indirect labor as related
to direct labor hours. The following data have been accumulated:
Month Indirect Labor Cost Direct Labor Hours
March $2,880 425
April 3,256 545
May 2,820 440
June 3,225 560
July 3,200 540
August 3,200 495

Required: Determine the amount of the fixed portion of indirect labor expense and the
variable rate for indirect labor expense, using the high and low points method. (Round the
variable rate to three decimal places and the fixed cost to the nearest whole dollar.)

Indirect Labor Cost (y) Direct Labor Hours (x)

High 3,225 560
Low 2,880 425
Difference 345 135
Variable rate = $345 / 135 = 2.556 per direct labor hour

Total cost formula: Y = a + bx

Y = total cost
A = total fixed cost
B = variable cost per unit
X = activity base

Fixed cost: a = y – bx

Using the highest point: a = y – bxhigh

Fixed cost = $3,225 – ($2.556 x 560) = 1,793.64 or 1,794
Using the lowest point: a = ylow – bxlow
Fixed cost = $2,880 – ($2.556 x 425) = 1,793.7 or 1,794

Either you use highest or lowest point, you will arrive with the same answer.

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Part II. Statistical Scatter-graph method
Dale Company management is interested in determining the fixed and variable components
of electricity expense, a semivariable cost, as measured against machine hours. Data for
the first eight months of the current year follow:

Month Machine Hours Electricity Cost

January 4,500 650
February 4,750 600
March 5,000 750
April 5,500 700
May 7,250 900
June 7,500 800
July 6,750 825
August 5,250 725

X Y
n Month Machine hours Electricity cost
1 January 4,500 650
2 February 4,750 600
3 March 5,000 750
4 April 5,500 700
5 May 7,250 900
6 June 7,500 800
7 July 6,750 825
8 August 5,250 725

COST ACCOUNTING AND CONTROL 2

Average total cost 743.75
Less: Fixed cost per month (est. based on graph) 300.00
Average total variable cost 443.75
Divided by average machine hours per month 5,813
Electricity cost per machine hour 0.08

Slope (electricity cost per machine hour based on least square method) 0.072062093

Roma 8:28

At nalalaman natin na ang lahat ng mga bagay ay nagkakalakip na gumagawa sa ikabubuti

ng mga nagsisiibig sa Dios, sa makatuwid baga’y niyaong mga tinawag alinsunod sa
Kaniyang nasa.

COST ACCOUNTING AND CONTROL 3