Breaking Down Mixed Costs (High-Low Method) - Accounting

The video tutorial explains the Hilo method, a common algebraic approach used to separate variable and fixed cost components of a mixed cost. It involves four steps: identifying high and low activity levels, computing the unit variable cost (UVC) using a slope formula, calculating the fixed cost, and completing the cost equation in the form Y = MX + B. An example is provided to demonstrate the application of these steps, emphasizing the importance of focusing on activity levels rather than costs.

What is the primary purpose of the High-Low method?

• To find the average cost per unit

• To determine the highest cost in a dataset

• To separate variable and fixed cost components

• To calculate the total cost of production

In the High-Low method, what is the first step?

• Calculate the total cost

• Identify the highest and lowest activity levels

• Determine the fixed cost

• Compute the average cost

How is the unit variable cost (UVC) calculated in the High-Low method?

• By multiplying activity level by cost per unit

• By adding fixed cost to variable cost

• By subtracting low cost from high cost and dividing by the difference in activity levels

• By dividing total cost by total activity

What is the equation used to calculate fixed cost in the High-Low method?

• Total cost minus UVC times level of activity

• Total cost plus UVC times level of activity

• UVC times level of activity plus fixed cost

• Total cost divided by level of activity

What form does the final cost equation take in the High-Low method?

• Y = MX + B

• Y = B + MX

• Y = M + XB

• Y = X + MB

In the example provided, what is the unit variable cost per hour?

• $2.50

• $2.00

• $1.50

• $1.00

What is the fixed cost calculated in the example using the High-Low method?

• $80.00

• $70.00

• $60.00

• $50.00