ACC 406 Chapter 3: Chapter 3
22 Jan 2012
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Are real-world cost relationships linear? y ex. on pg 81-82. narrow steps mean that the cost changes in response to fairly small changes in output. mainly if it s very narrow then the step cost is a variable cost (ex. on pg: exhibit 3-6b shows with wide steps. The high-low method y high-low method is a method of separating mixed costs into fixed & variable components by using just the high & low data points y 4 steps must be taken: 1. Find the high point & the low point for a given data set. high point & low point r identified by looking at the activity levels & not the costs (ex. on pg 86: 2. Using the high & low points, calculate the variable rate. variable rate = (high point cost low point cost)/(high point output low point output) (ex. on pg 86: 3.
