BM1915

Laboratory Exercise
Applying the High-Low Method in Separating
Mixed Costs using MS Excel
Objectives:

At the end of the exercise, the students should be able to:

 Separate variable and fixed components of a mixed cost through the high-low method.

Materials:

 Pen
 Scratch papers

Basic Principles:

Separating mixed costs using the high-low method

The most commonly used method in separating mixed costs to determine its fixed and variable component is
the high-low method. In this method, the fixed and variable elements of the mixed costs are computed from two
(2) data points (periods)—the high and low periods—as to activity level or cost level within the relevant range.
However, it uses only two (2) data points and ignores the rest, thus generalizing the cost behavior by relying on
only a very small percentage of possible data observations.

Problem: Leviticus, Inc.’s electricity costs and machine hours over a nine-month period are as follows (relevant
range is from 2,000 to 5,000 machine hours):

Machine Hours and Electricity Costs for Leviticus, Inc.

Month Machine Hours Electricity Costs
April 2,100 P9,750
May 3,400 14,300
June 5,800 21,640
July 4,900 19,550
August 2,500 11,150
September 3,000 12,900
October 2,400 10,800
November 1,800 8,440
December 4,800 22,000

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Procedure:

1. Open MS Excel and start a new worksheet.

2. Enter the information below, following the correct formats.

CELL DATA FORMAT

Machine Hours and Utility Arial, 11 pt, bold
A1-B1-C1
Costs for Leviticus, Inc. Row height: 20
Column width: 20
Merged Cell
A2 Month Arial, 10 pt, bold, middle
B2 Machine Hours align
C2 Electricity Costs Row height: 18
Column width: 20
A3 to A11 April - December Arial, 10 pt, middle align
Row height: 18
Column width: 20
B3 to B11 2,100 Arial, 10 pt, middle align
3,400 Row height: 18
5,800 Column width: 20
4,900
2,500
3,000
2,400
1,800
4,800
C3 to C11 P9,750 Arial, 10 pt, middle align
14,300 Row height: 18
21,640 Column width: 20
19,550
11,150
12,900
10,800
8,440
22,000

3. Construct a bar graph by holding the CTRL key while highlighting A2 to A11, B2 to B11, and C2 to C11.
4. Under the Insert toolbar, select Insert Combo Chart and choose Clustered Combo Chart.
5. Click on Chart Elements indicated by the plus sign on the upper right side of the graph and select Axis
titles.
6. Input “Machine Hours and Electricity Costs for Leviticus, Inc.” in the chart title.
7. Input “Months” on the horizontal axis title.
8. Input “Machine Hours” on the vertical axis title on the left side of the graph.
9. Input “Cost” on the vertical axis title on the right side of the graph.
10. Move the graph under the table of Machine Hours and Utility Costs for Automotive Inc.
11. Refer to Table 1 and Graph 1 for the finished output on Page 5.
12. Highlight A1 to A2, B1 to B2, and C1 to C2. Copy and paste it on A29 to A30, B29 to B30, and C29 to C30,
respectively.

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13. Select the highest and lowest levels of activity and corresponding costs within the given set of data. Note
that they should be within the relevant range.
14. Copy the month, machine hours, and electricity costs of the highest level of activity and costs and paste it
on A30 to C30.
15. Copy the month, machine hours, and electricity costs of the lowest level of activity and costs and paste it
on A31 to C31.
16. Compute for the variable cost per unit, highest and lowest levels of variable costs, and highest and lowest
levels of fixed cost.
17. Save the Excel file as Surname_ProjMgtExer1 and place it on the network drive.

CELL DATA FORMAT

A29-B29-C29 Machine Hours and Arial, 11 pt, Bold,
Electricity Costs for
Leviticus, Inc. Row height: 20
Column width: 20
Merged cell
A30 Month Arial, 10 pt, middle align
B30 Machine Hours Row height: 18
C30 Electricity Costs Column width: 20
A31 July Arial, 10 pt, middle align
A32 April Row height: 18
Column width: 20
A33 Difference Arial, 10 pt
Row height: 18
Column width: 20
B31 4,900 Arial, 10 pt, middle align
B32 2,100 Row height: 18
Column width: 20
C31 19,550 Arial, 10 pt, middle align
C32 9,750 Row height: 18
Column width: 20
B33 Difference of highest and Arial, 10 pt
lowest level of machine Row height: 18
hours Column width: 20
C33 Difference of highest and Arial, 10 pt
lowest level of utility costs Row height: 18
Column width: 20
A34-B34 Variable Cost (VC) per unit Arial, 10 pt, middle align,
thick border
Row height: 20
Column width: 20
Merged cell
C34 Answer to Variable cost Arial, 10 pt, middle align,
(VC) per unit thick border
Row height: 20
Column width: 20

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CELL DATA FORMAT

A35-B35 Total variable cost at Arial, 10 pt, middle align,
highest level thick border
Row height: 20
Column width: 20
Merged cell
C35 Answer to Total variable Arial, 10 pt, middle align,
cost at highest level thick border
Row height: 20
Column width: 20
Total variable cost at lowest Arial, 10 pt, middle align,
A36-B36
level thick border
Row height: 20
Column width: 20
Merged Cell
C36 Answer to Total variable Arial, 10 pt, middle align,
cost at lowest level thick border
Row height: 20
Column width: 20
A37-B37 Fixed cost at highest level Arial, 10 pt, middle align,
thick border
Row height: 20
Column width: 20
Merged Cell
C37 Answer to fixed cost at Arial, 10 pt, middle align,
highest level thick border
Row height: 20
Column width: 20
A38-B38 Fixed cost at lowest level Arial, 10 pt, middle align,
thick border
Row height: 20
Column width: 20
Merged cell
C38 Answer to fixed cost at Arial, 10 pt, middle align,
lowest level thick border
Row height: 20
Column width: 20
A39-B39 Total costs at 2,900 Arial, 10 pt, middle align,
machine hours thick border
Row height: 20
Column width: 20
C39 Answer to Total Costs at Arial, 10 pt, middle align,
2,900 Machine Hours thick border
Row height: 20
Column width: 20

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Table 1. Machine hours and electricity costs for Leviticus, Inc.

Figure 1. Machine hours and electricity costs for Leviticus, Inc.

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Table 2. High-low method of machine hours and electricity costs for Leviticus, Inc.

Rubric for scoring:

CRITERIA PERFORMANCE INDICATORS POINTS

Neatness and The spreadsheet has exceptional formatting, and the information is well-
20
Organization organized.
The spreadsheet formulas are well-developed and will correctly
Formulas 30
determine the needed information.
Titles, Labels, and
The spreadsheet contains clearly labeled rows and columns. 10
Headings
The spreadsheet meets all the necessary requirements to interpret the
Content 40
result of the operation.
TOTAL 100

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