high low method machine hours

The Hunter Company uses the high-low method to estimate the cost function. The company observed that at 21000 machine hours of activity total maintenance costs averaged 3620 per hour.

High Low Method Learn How To Create A High Low Cost Model

3 Total cost on 1220 Machine hour will be 1220161740 3692.

. 3711 1060 3710 1250 Final Check 4600 1350 June 4414 1440. Factory overheadMachine hours. If 29000 machine hours were budgeted for the next period estimated semi-variable costs would total.

Using the high-low method of analysis estimate the variable electrical cost per machine hour. High-low Method is used in Accounting to separate fixed and variable cost element from historical cost that is a mixture of both fixed and variable cost and with the use of the high low formula per unit variable cost is measured by subtracting the cost of lowest activity from the cost of highest activity and dividing the resultant amount from. A Using the high-low method separate the cost of goods sold and operating expenses into their variable and fixed elements.

Recent data are shown below. Change in cost Change in volume Variable cost slope 는 - X Data table Round the variable cost to the nearest cent Using the high-low method the variable utilities cost per machine hour is 160 Machine Hours 1050 Requirement 2. Machine Hours Electrical Cost January 4000 3120 February 6000 4460 March 4800 3500 April 5800 5040 May 3600 2900 June 4200 3200 Required.

The Cost function will be. The companys relevant range of activity varies from a low of 600 machine hours to a high of 1200 machine hours with the following data being available for the first six months of the year. The company wants to know the rate at which its electricity cost changes when the number of machine hours change.

Units labor hours machine hours etc and the corresponding total cost figures high-low method only takes two extreme data pairs ie. Lets begin by determining the formula that is used to calculate the variable cost slope. Using either the high or low activity cost should yield approximately the same fixed cost value.

Fixed cost 105450 7497 x 1000 30480. Problem 2 Electrical costs at one of R Companys factories are listed below. In reviewing the shops utility bills for the past 12 months he found that the highest bill of 2700 occurred in August when the machines worked.

This method can be used advantageously where the machine is the major factor in production. Machine-hours Labor Costs Highest observation of cost driver 400 10000 Lowest observation of cost driver 240 6800 2. A manufacturing company estimates semi-variable costs by using the high-low method with machine hours as the cost driver.

Assume that the cost of electricity at a small manufacturing facility is a mixed cost since the company has only one electricity meter for air quality cooling lighting and for its production equipment. What is the estimate of the total cost when 300 machine-hours are used. High Low Method is not representative of entire data as it is based on just 2 activity levels.

In cost accounting a way of attempting to separate out fixed and variable costs given a limited amount of data. Given a set of data pairs of activity levels ie. Period Semi-Variable Costs Machine Hours 1 100000 22000 2 120000 30000 3 96000 23600 If 29000 machine hours were budgeted for the next period estimated semi-variable costs would total A.

Month Maintenance Cost Machine Hours. Variable utilities cost per machine hour Change in costhigh machine hour-low machine hour 4076-33881460-1030. High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior.

In capital intensive industries plants and machines are used in large quantities and one operator may attend to several machines or several operators may attend to single machine. February March. A manufacturing company estimates semi-variable costs by using the high-low method with machine hours as the cost driver.

The companys relevant range of activity varies from a low of 600 machine hours to a high of 1100 machine hours with the following data being available for the first six months of the year. Assume that the relevant range includes all of the activity levels mentioned in this problem. Using the high-low method the variable utilities cost per machine hour is 2664 Х Data Table Month Total Cost Machine Hours 3400 1090 3730 1140 January.

Assuming Cosco Company uses the high-low method of analysis the fixed cost of maintenance would be. A manufacturing company estimates semi-variable costs by using the high-low method with machine hours as the cost driver. 2 Fixed cost Total cost-variable cost 3388-103016 Fixed cost 1740.

High-Low method is one of the several mathematical techniques used in managerial accounting to split a mixed cost into its fixed and variable components. Recent data are shown below. Example of High-Low Method.

The high-low method involves taking the highest level of activity. When activityjumped to 25000 machine hours which was still within the relevant range the average total cost per machine hour was 3140. The information for 20x3 is provided below.

B Determine the cost formula for each type of cost. Uses the highlow method to analyze cost behavior. Variable utilities cost per machine hour 16 per machine hour.

High-low Method is used in Accounting to separate fixed and variable cost element from historical cost that is a mixture of both fixed and variable cost and with the use of the high low formula per. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. Barkoff Enterprises which uses the high-low method to analyze cost behavior has determined that machine hours best explain the companys utilities cost.

Hotlanta Inc which uses the high-low method to analyze cost behavior has determined that machine hours best explain the companys utilities cost. Machine-Hours Maintenance Costs Highest observation of cost driver 140000 280000 Lowest observation of cost driver 95000 190000 Difference 45000 90000 Maintenance costs a b Machine-hours Slope coefficient b 90000 45000 2 per machine-hour Constant a 280000 280000 0 or Constant a 190000. The highest and the.

Note that our fixed cost differs by 635 depending on whether we use the high or low activity cost. Machine-Hours Electrical Cost March 413 7371 April 506 7740. It is a nominal difference and choosing either fixed cost for our cost model will suffice.

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