High-Low Method

Problem1: Metro Transit Company has the following maintenance costs and mileage data for its fleet of buses over a 6-month period.

STEP 1:Determine variable cost per unit using the following formula:

STEP 2:Determine the fixed cost by subtracting the total variable cost at either the high or the low activity level from the total cost at that activity level.

STEP 3 Prediction: At 45,000 miles, what is the estimated maintenance costs?

Problem2: Byrnes Company accumulates the following data concerning a mixed cost, using units produced as the activity level.

(a)Compute the variable- and fixed-cost elements using the high-low method.

(b)Estimate the total cost if the company produces 8,000 units.