FINC 577 Chapter 5 Notes Outline

Chapter 5 18 mixed mixed costs high highlow method

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Unformatted text preview: d Costs: High– High–Low Method Example Data for Metro Transit Company for 4 month period: High Level of Activity: Low Level of Activity: Difference April January January $63,000 30,000 $33,000 50,000 miles 20,000 miles 30,000 miles Step 1: Using the formula, variable costs per unit are: $33,000 ÷ 30,000 miles = $1.10 variable cost per mile. $1.10 Chapter 5-19 Mixed Costs: High–LowHigh–Low-Method Example Step 2: Determine the fixed costs by subtracting total variable costs at either the high or low activity the level from the total cost at that same level. Chapter 5-20 Mixed Mixed Costs: High–LowHigh–Low-Method Example Maintenance costs: $8,000 per month plus $1.10 per mile. To determine maintenance costs at a particular activity level: 1. 2. Multiply the activity level times the variable cost per unit, Then add that total to the fixed cost. EXAMPLE: If the activity level is 45,000 miles, the estimated maintenance costs would be $8,000 fixed costs and $49,500 variable ($1.10 × 45,000 miles)...
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