Chapter 5, Problem 3.3GAP

To determine

Introduction:

High-Low Method:

This method is used to determine the fixed as well as variable part of the mixed cost. The formula for calculation of variable cost per unit is as follows:

$\begin{array}{l}\hfill \\ \text{Variable cost per unit = }\frac{\left(\text{High Cost - Low Cost}\right)}{\left(\text{High units - low units}\right)}\hfill \end{array}$

Regression method:

Least square regression method:

It is a statistical procedure which is used to find the best fit for a set of data (points) by minimizing the sum of the residual points from the plotted curve.

To state:

The reason for difference between cost predictions based on high-low method and regression analysis and comment on their accuracy.