HighLow .ppt

identifyingcostrelationshipshigh lowmethod principlesofcostanalysisandmanagement daler geiger2011 1 howcanwedeterminewhichcostsarefixedandwhicharevariable daler geiger2011 2 terminallearningobjective task determinethefixedandvariablecomponentsofamixedcostusingthehigh lowmethodcondition youareacostadvisortechnicianwithaccesstoallregulations coursehandouts andawarenessofoperationalenvironment oe contemporaryoperationalenvironment coe variablesandactors standard withatleast80 accuracycalculatefixedandvariablecostcomponentsfrommixedcostdatadescribehigh lowmethod daler geiger2011 3 needforhigh lowmethod fixedandvariablecomponentsofcostarenotalwaysidentifiablethisisespeciallytrueinserviceactivitiessometimescostsaren tstrictlyfixedandvariablebutmixedorsemi variablethehigh lowmethodpermitsfurtheranalysisbyfindinganapproximatevalueforvariableandfixedcosts daler geiger2011 4 high lowassumptions therelationshipbetweenthecostatthehighestlevelofoutputandthecostatthelowestlevelofoutputislinearthislinearrelationshipreasonablyrepresentstherelationshipbetweencostsatotherlevelsofoutputthechangeincostfromthehighestleveltothelowestlevelisduetothechangeinunitsfromthehighestleveltothelowest changeincost changeinunits vc unit daler geiger2011 5 high lowcalculation step1 calculatevariablecost unit changeincost changeinunitsor athighoutput atlowoutput unitsathighoutput unitsatlowoutputstep2calculatefixedcost totalcost variablecostor highoutput vc unit unitshighoutput daler geiger2011 6 high lowcalculation step1 calculatevariablecost unit changeincost changeinunitsor athighoutput atlowoutput unitsathighoutput unitsatlowoutputstep2calculatefixedcost totalcost variablecostor highoutput vc unit unitshighoutput daler geiger2011 7 high lowcalculation step1 calculatevariablecost unit changeincost changeinunitsor athighoutput atlowoutput unitsathighoutput unitsatlowoutputstep2calculatefixedcost totalcost variablecostor total highoutput vc unit unitshighoutput daler geiger2011 8 high lowcalculation step3 developthecostexpressionfortotalcost totalcost vc unit units fixedcostthisequationcanbeusedfor planningforvariouslevelsofoutputbreakevenanalysis day9 daler geiger2011 9 checkonlearning inthehigh lowmethod thechangeincostfromthehighlevelofoutputtothelowlevelofoutputisassumedtobecausedby howisfixedcostcalculatedusingthehigh lowmethod daler geiger2011 10 high lowexample thepurchasingdepartmentshowsthefollowingactivityforthelastfourmonths monthposprocessedtotalcostsjan100 2500feb802200mar1203000april1052750 daler geiger2011 11 high lowexample themanagerofthepurchasingdepartmentseesthattotalcostsincreaseaspurchaseordersincreasehowever heknowsthatthecostisnotstrictlyvariablehewouldliketosegregatethevariablecomponentofthecostfromthefixedcost daler geiger2011 12 graphofactualcosts costat120pos 3000 costat80pos 2200 x axisrepresentsnumberofpurchaseorders daler geiger2011 13 multiplelinearrelationshipsexist essentiallyanytwopointsonthegraphrepresentalinearrelationship x axisrepresentsnumberofpurchaseorders daler geiger2011 14 high lowrelationship high lowmethodassumestherelationshipbetweenhighestpointandlowestpointisrepresentativeofthewhole x axisrepresentsnumberofpurchaseorders daler geiger2011 15 calculateunitvariablecost changeincost changeinunits total athighoutput total atlowoutput unitsathighoutput unitsatlowoutput 3000 2200 120units 80units 800 40units 20 unit daler geiger2011 16 calculateunitvariablecost changeincost changeinunits total athighoutput total atlowoutput unitsathighoutput unitsatlowoutput 3000 2200 120units 80units 800 40units 20 unit daler geiger2011 17 calculateunitvariablecost changeincost changeinunits total athighoutput total atlowoutput unitsathighoutput unitsatlowoutput 3000 2200 120units 80units 800 40units 20 unit daler geiger2011 18 calculatefixedcost totalcost variablecost total highoutput vc unit unitshighoutput 3000 20 unit 120units 3000 20 unit 120units 3000 20 120 3000 2400 600 daler geiger2011 19 calculatefixedcost totalcost variablecost total highoutput vc unit unitshighoutput 3000 20 unit 120units 3000 20 unit 120units 3000 20 120 3000 2400 600 daler geiger2011 20 calculatefixedcost totalcost variablecost total highoutput vc unit unitshighoutput 3000 20 unit 120units 3000 20 unit 120units 3000 20 120 3000 2400 600 daler geiger2011 21 calculatefixedcost totalcost variablecost total highoutput vc unit unitshighoutput 3000 20 unit 120units 3000 20 unit 120units 3000 20 120 3000 2400 600 daler geiger2011 22 expressthemixedcostrelationship totalcost vc unit units fixedcosttotalcost 20 unit units 600 daler geiger2011 23 expressthemixedcostrelationship totalcost vc unit units fixedcosttotalcost 20 unit units 600 daler geiger2011 24 usingthecostexpression forplanning ifplannedoutputinmayis60purchaseorders whatisourexpectedcost 20 po 60pos 600 1800ifplannedoutputinjuneis130purchaseorders 20 po 130pos 600 3200 daler geiger2011 25 usingthecostexpression forplanning ifplannedoutputinmayis60purchaseorders whatisourexpectedcost 20 po 60pos 600 1800ifplannedoutputinjuneis130purchaseorders 20 po 130pos 600 3200 daler geiger2011 26 usingthecostexpression forplanning ifplannedoutputinmayis60purchaseorders whatisourexpectedcost 20 po 60pos 600 1800ifplannedoutputinjuneis130purchaseorders 20 po 130pos 600 3200 daler geiger2011 27 usingthecostexpression forcomparisonandlearningapril scostof 2750for105poswashigherthanexpected why expectedcost 20 po 105pos 600 2700january scostof 2500for100poswaslowerthanexpected why expectedcost 20 po 100pos 600 2600whatdidwedodifferently whatcanwelearn daler geiger2011 28 usingthecostexpression forcomparisonandlearningapril scostof 2750for105poswashigherthanexpected why expectedcost 20 po 105pos 600 2700january scostof 2500for100poswaslowerthanexpected why expectedcost 20 po 100pos 600 2600whatdidwedodifferently whatcanwelearn daler geiger2011 29 usingthecostexpression forcomparisonandlearningapril scostof 2750for105poswashigherthanexpected why expectedcost 20 po 105pos 600 2700january scostof 2500for100poswaslowerthanexpected why expectedcost 20 po 100pos 6