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Unformatted text preview: Estimating F ixed Costs from M ixed costs
M ixed costs: combine mix and variable costs, two method of estimating mixed costs
-The high-low method
-The regression method The H igh-low method Production in Units Total Production Costs X 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 Y=ax+b where a=variable cost per unit and b= fixed cost
Y H =highest costs
XH =highest production units
Y L =lowest costs
XL= lowest production uni ts
1st choose the highest Y H i n this example 1,600,000 put into the equation Y H =aXH +b => 1600000=a*6800000+b
2nd choose the lowest Y L i n this example 900,000 put in to the equation
Y L =aXL +b => 900000=a*3000000+b
A nd solve i t to get the b which is fixed cost
Y H -Y L F ast method: fixed costs= b= Y H -X H ( X H -X L ) The reg ression method Is considerably more complex and determines the average rate of variability of a mixed costs rather than the variability between
t he high and low points in the range ...
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This note was uploaded on 08/16/2011 for the course MGMT 301 taught by Professor Hisham during the Spring '11 term at McMaster University.
- Spring '11