Estimating Fixed Costs from Mixed costs

Estimating Fixed Costs from Mixed costs - Fast method fixed...

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Estimating Fixed Costs from Mixed costs Mixed costs: combine mix and variable costs, two method of estimating mixed costs -The high-low method -The regression method The High-low method Y=ax+b where a=variable cost per unit and b= fixed cost YH=highest costs XH=highest production units YL=lowest costs XL= lowest production units 1 st choose the highest YH in this example 1,600,000 put into the equation YH=aXH+b => 1600000=a*6800000+b 2 nd choose the lowest YL in this example 900,000 put into the equation YL=aXL+b => 900000=a*3000000+b And solve it to get the b which is fixed cost (YH-YL/XH-XL)
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Unformatted text preview: Fast method: fixed costs= b= YH-XH ( YH-YL ) XH-XL The regression method Is considerably more complex and determines the average rate of variability of a mixed costs rather than the variability between the high and low points in the range Production in Units X Total Production Costs Y January 6,257,000 $ 1,500,000 February 4,630,000 1,200,000 March 5,200,000 1,300,000 April 5,443,000 1,350,000 May 5,715,000 1,400,000 June 3,000,000 900,000 July 3,543,000 1,000,000 August 3,815,000 1,050,000 September 5,715,000 1,400,000 October 6,800,000 1,600,000...
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