Question Tag: High-Low Method

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  • 1 Marks

MI – Nov 2015 – L1 – SA – Q7 – Costing Techniques

Uses the high-low method to calculate fixed and variable cost elements from activity data.

Use the high-low method to calculate the Fixed Cost (FC) and Variable Cost (VC) elements of the

A. VC = N0.08/unit, FC = N1,120/unit
B. VC = N0.88/unit, FC = N1,020/unit
C. VC = N0.80/unit, FC = N1,220/unit
D. VC = N0.82/unit, FC = N1,320/unit
E. VC = N0.85/unit, FC = N1,330/unit

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  • 1 Marks

MI – Nov 2014 – L1 – SA – Q1 – Costing Techniques

Calculate variable and fixed costs using the high-low method based on monthly activity data.

Use the high-low method to calculate the fixed and variable elements of the following costs:

Month Activity N
January 600 1,700
February 800 1,900
March 650 1,750
April 850 1,950
May 900 2,100
June 1,350 2,300

A. VC = N0.08/unit, FC = N1120
B. VC = N0.88/unit, FC = N1020
C. VC = N0.80/unit, FC = N1220
D. VC = N0.82/unit, FC = N1320
E. VC = N0.85/unit, FC = N1330

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  • 20 Marks

MI – May 2017 – L1 – SB – Q2 – Forecasting Techniques

Determine fixed and variable costs using high-low method and linear regression analysis.

MICRA Manufacturing Company makes a product named as VATA. The records of some of the manufacturing expenses are easily identified as fixed or directly varied with production. The cost accountant of the company is confronted with the problem of preparing a budget for the coming year and wishes to determine the fixed and variable elements of the mixed factory overhead.

The following monthly information in respect of output and mixed factory overhead are provided as follows:

MONTH NUMBER OF UNITS (x) MIXED FACTORY OVERHEAD (y)
JANUARY 150 80
FEBRUARY 200 100
MARCH 300 135
APRIL 250 125
MAY 300 130
JUNE 250 120
JULY 350 140
AUGUST 300 125
SEPTEMBER 250 115
OCTOBER 150 80

Required:

a. Calculate the fixed and variable elements of the above mixed factory overhead using the high and low method. (5 Marks)

b. Use the linear regression analysis and determine the line of best fit. (15 Marks)

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  • 20 Marks

MA – Nov 2020 – L2 – Q5 – High/Low Analysis, Cost-Volume-Profit (CVP) Analysis

Determine maintenance costs using the high-low method, and calculate break-even point, required sales for target profit, and margin of safety for Quickspray Ltd.

Quickspray Ltd offers professional car spraying services at Suame Magazine. The company is planning its activities for the month of June 2018 for its saloon car spraying section. The company charges a service fee of GH¢1,000 and incurs fixed cost (excluding fixed maintenance cost) and variable cost per unit (excluding variable maintenance cost) of GH¢35,000 and GH¢644.39 respectively for spraying a saloon car.

The following data also relates to Quickspray Ltd on the maintenance hours of its key machine, revenue, and profit for the six months ended April 2018:

Month Maintenance Hours Revenue (GH¢) Profit (GH¢)
November 2017 1,200 19,000 700
December 2017 1,425 24,000 1,425
January 2018 1,410 20,100 650
February 2018 1,400 20,000 1,000
March 2018 1,175 18,000 (125)
April 2018 1,275 19,000 175

Total fixed cost increases by GH¢1,120 when maintenance hours go beyond 1,400.

Required:

a) Determine the total maintenance cost of production, using the high-low method if:

i) Maintenance hours for May are budgeted to be 1,520.
ii) Maintenance hours for June are budgeted to be 1,075.

b) Calculate for the month of May the:

i) Break-even point in units and value.
ii) Sales level required to make an after-tax profit of GH¢21,150, assuming Quickspray Ltd is in the 25% tax bracket.
iii) Margin of safety if the target after-tax profit of GH¢21,150 is achieved.

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  • 5 Marks

MA – May 2019 – L2 – Q2a – Cost-volume-profit (CVP) analysis

Determine the total variable cost per unit, total fixed overhead, and express the cost function based on given data.

Komosa Ltd is reviewing the selling price of its product for the coming year. A forecast of the annual costs that would be incurred by Komosa Ltd in respect of this product at differing activity levels is as follows:

Annual production (unit) 100,000 160,000 200,000
Direct materials (GH¢000) 200 320 400
Direct labour (GH¢000) 600 960 1,200
Overhead (GH¢000) 880 1,228 1,460

The cost behavior represented in the above forecast will apply for the whole range of output up to 300,000 units per annum of this product.

Required:
i) Calculate the total variable cost per unit and total fixed overhead. (4 marks)
ii) State the total cost function. (1 mark)

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  • 20 Marks

IMAC – AUG 2022 – L1 – Q5 – Costs and Cost Behaviour

Establishment of total cost function using high-low method, profit calculation for a specific production level, and identification of advantages and disadvantages of high-low method.

a) Takyi Carpentry makes twin-desk for local schools in the Daboase District. To facilitate control, the owner of the shop has asked you to assist him in analysing cost into fixed and variable elements.

Below is his six-year financial information:

Year No. of Twin-Desk Revenue (GH¢) Profit (GH¢)
2016 1,800 19,600 6,000
2017 1,700 22,000 6,200
2018 1,750 20,300 5,800
2019 2,100 26,200 8,000
2020 1,950 22,400 7,500
2021 2,050 21,800 6,800

Required: i) Establish total cost function using high-low method. (5 marks)

ii) Calculate profit for making 3,500 units of the twin-desk if the selling price is fixed at GH¢20. (3 marks)

iii) Identify TWO (2) advantages and TWO (2) disadvantages of using high-low method. (4 marks)

iv) Identify THREE (3) importance for classifying cost as fixed and variable. (3 marks)

b) For managers within a company, exercising control through standards and standard costing is a creative program aimed at determining whether the organisations’ resources are being used optimally. Standard costs are typically determined during the budgetary control process because it uses predetermined standard costs for direct material, direct labour and factory overheads.

Required: Explain THREE (3) benefits to a company that uses standard costing. (5 marks)

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  • 20 Marks

IMAC – APRIL 2022 – L1 – Q5 – Standard Costing and Variance Analysis

Computation of variances for a product, derivation of a cost prediction formula using the high-low method, and explanation of seasonal variation models.

a) Magawa Ltd operates a standard variables costing system and manufactures a single product called “Magic Touch”.

The following quantities, costs and prices data have been extracted for the period just ended March 31, 2021 in respect of Magic Touch:

Standard cost card:

GH¢
Direct materials 15g at GH¢10/g = 150
Direct labour 8 hours at GH¢6/hour = 48
Variable overheads 8 hours at GH¢4/hour = 32
Standard contribution 25
Standard selling price per unit 255

Budgeted production units: 1,500

Actual results for the period ended March 31, 2021 were as follows:
Production and sales units 1,650
Selling price per unit GH¢278
Direct materials used 23,760g
Direct materials costs GH¢308,880
Direct labour hours worked 10,725
Direct labour costs GH¢85,800
Variable overheads GH¢68,000

Required: i) Compute the following variances for Magawa Ltd for the period ended March 31, 2021:

  1. Direct materials price variance. (1 mark)
  2. Direct materials usage variance. (1 mark)
  3. Direct labour rate variance. (1 mark)
  4. State ONE (1) possible reason for the material price variance calculated. (1 mark)
  5. State ONE (1) possible reason for the labour rate variance calculated. (1 mark)

b) The Valuation Department of a large firm of surveyors wishes to develop a method of predicting its total costs in a period. The following past costs and activity levels have been recorded.

Period Number of Valuations (V) Total Cost (TC) GH¢
1 420 82,200
2 515 90,275
3 425 82,900
4 500 90,000

Required: i) Derive a formula for the total cost model for a period. (4 marks) ii) Evaluate the usefulness of the high-low method. (4 marks)

c) The trend line on its own is not sufficient to make forecasts for the future. Estimates of the size of the ‘seasonal’ variation for each of the different seasons are needed. The seasonal variation is then used to adjust a forecast trend.

Required: Explain TWO (2) models used to estimate seasonal variations. (7 marks)

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  • 1 Marks

MI – Nov 2015 – L1 – SA – Q7 – Costing Techniques

Uses the high-low method to calculate fixed and variable cost elements from activity data.

Use the high-low method to calculate the Fixed Cost (FC) and Variable Cost (VC) elements of the

A. VC = N0.08/unit, FC = N1,120/unit
B. VC = N0.88/unit, FC = N1,020/unit
C. VC = N0.80/unit, FC = N1,220/unit
D. VC = N0.82/unit, FC = N1,320/unit
E. VC = N0.85/unit, FC = N1,330/unit

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  • 1 Marks

MI – Nov 2014 – L1 – SA – Q1 – Costing Techniques

Calculate variable and fixed costs using the high-low method based on monthly activity data.

Use the high-low method to calculate the fixed and variable elements of the following costs:

Month Activity N
January 600 1,700
February 800 1,900
March 650 1,750
April 850 1,950
May 900 2,100
June 1,350 2,300

A. VC = N0.08/unit, FC = N1120
B. VC = N0.88/unit, FC = N1020
C. VC = N0.80/unit, FC = N1220
D. VC = N0.82/unit, FC = N1320
E. VC = N0.85/unit, FC = N1330

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  • 20 Marks

MI – May 2017 – L1 – SB – Q2 – Forecasting Techniques

Determine fixed and variable costs using high-low method and linear regression analysis.

MICRA Manufacturing Company makes a product named as VATA. The records of some of the manufacturing expenses are easily identified as fixed or directly varied with production. The cost accountant of the company is confronted with the problem of preparing a budget for the coming year and wishes to determine the fixed and variable elements of the mixed factory overhead.

The following monthly information in respect of output and mixed factory overhead are provided as follows:

MONTH NUMBER OF UNITS (x) MIXED FACTORY OVERHEAD (y)
JANUARY 150 80
FEBRUARY 200 100
MARCH 300 135
APRIL 250 125
MAY 300 130
JUNE 250 120
JULY 350 140
AUGUST 300 125
SEPTEMBER 250 115
OCTOBER 150 80

Required:

a. Calculate the fixed and variable elements of the above mixed factory overhead using the high and low method. (5 Marks)

b. Use the linear regression analysis and determine the line of best fit. (15 Marks)

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  • 20 Marks

MA – Nov 2020 – L2 – Q5 – High/Low Analysis, Cost-Volume-Profit (CVP) Analysis

Determine maintenance costs using the high-low method, and calculate break-even point, required sales for target profit, and margin of safety for Quickspray Ltd.

Quickspray Ltd offers professional car spraying services at Suame Magazine. The company is planning its activities for the month of June 2018 for its saloon car spraying section. The company charges a service fee of GH¢1,000 and incurs fixed cost (excluding fixed maintenance cost) and variable cost per unit (excluding variable maintenance cost) of GH¢35,000 and GH¢644.39 respectively for spraying a saloon car.

The following data also relates to Quickspray Ltd on the maintenance hours of its key machine, revenue, and profit for the six months ended April 2018:

Month Maintenance Hours Revenue (GH¢) Profit (GH¢)
November 2017 1,200 19,000 700
December 2017 1,425 24,000 1,425
January 2018 1,410 20,100 650
February 2018 1,400 20,000 1,000
March 2018 1,175 18,000 (125)
April 2018 1,275 19,000 175

Total fixed cost increases by GH¢1,120 when maintenance hours go beyond 1,400.

Required:

a) Determine the total maintenance cost of production, using the high-low method if:

i) Maintenance hours for May are budgeted to be 1,520.
ii) Maintenance hours for June are budgeted to be 1,075.

b) Calculate for the month of May the:

i) Break-even point in units and value.
ii) Sales level required to make an after-tax profit of GH¢21,150, assuming Quickspray Ltd is in the 25% tax bracket.
iii) Margin of safety if the target after-tax profit of GH¢21,150 is achieved.

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  • 5 Marks

MA – May 2019 – L2 – Q2a – Cost-volume-profit (CVP) analysis

Determine the total variable cost per unit, total fixed overhead, and express the cost function based on given data.

Komosa Ltd is reviewing the selling price of its product for the coming year. A forecast of the annual costs that would be incurred by Komosa Ltd in respect of this product at differing activity levels is as follows:

Annual production (unit) 100,000 160,000 200,000
Direct materials (GH¢000) 200 320 400
Direct labour (GH¢000) 600 960 1,200
Overhead (GH¢000) 880 1,228 1,460

The cost behavior represented in the above forecast will apply for the whole range of output up to 300,000 units per annum of this product.

Required:
i) Calculate the total variable cost per unit and total fixed overhead. (4 marks)
ii) State the total cost function. (1 mark)

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  • 20 Marks

IMAC – AUG 2022 – L1 – Q5 – Costs and Cost Behaviour

Establishment of total cost function using high-low method, profit calculation for a specific production level, and identification of advantages and disadvantages of high-low method.

a) Takyi Carpentry makes twin-desk for local schools in the Daboase District. To facilitate control, the owner of the shop has asked you to assist him in analysing cost into fixed and variable elements.

Below is his six-year financial information:

Year No. of Twin-Desk Revenue (GH¢) Profit (GH¢)
2016 1,800 19,600 6,000
2017 1,700 22,000 6,200
2018 1,750 20,300 5,800
2019 2,100 26,200 8,000
2020 1,950 22,400 7,500
2021 2,050 21,800 6,800

Required: i) Establish total cost function using high-low method. (5 marks)

ii) Calculate profit for making 3,500 units of the twin-desk if the selling price is fixed at GH¢20. (3 marks)

iii) Identify TWO (2) advantages and TWO (2) disadvantages of using high-low method. (4 marks)

iv) Identify THREE (3) importance for classifying cost as fixed and variable. (3 marks)

b) For managers within a company, exercising control through standards and standard costing is a creative program aimed at determining whether the organisations’ resources are being used optimally. Standard costs are typically determined during the budgetary control process because it uses predetermined standard costs for direct material, direct labour and factory overheads.

Required: Explain THREE (3) benefits to a company that uses standard costing. (5 marks)

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  • 20 Marks

IMAC – APRIL 2022 – L1 – Q5 – Standard Costing and Variance Analysis

Computation of variances for a product, derivation of a cost prediction formula using the high-low method, and explanation of seasonal variation models.

a) Magawa Ltd operates a standard variables costing system and manufactures a single product called “Magic Touch”.

The following quantities, costs and prices data have been extracted for the period just ended March 31, 2021 in respect of Magic Touch:

Standard cost card:

GH¢
Direct materials 15g at GH¢10/g = 150
Direct labour 8 hours at GH¢6/hour = 48
Variable overheads 8 hours at GH¢4/hour = 32
Standard contribution 25
Standard selling price per unit 255

Budgeted production units: 1,500

Actual results for the period ended March 31, 2021 were as follows:
Production and sales units 1,650
Selling price per unit GH¢278
Direct materials used 23,760g
Direct materials costs GH¢308,880
Direct labour hours worked 10,725
Direct labour costs GH¢85,800
Variable overheads GH¢68,000

Required: i) Compute the following variances for Magawa Ltd for the period ended March 31, 2021:

  1. Direct materials price variance. (1 mark)
  2. Direct materials usage variance. (1 mark)
  3. Direct labour rate variance. (1 mark)
  4. State ONE (1) possible reason for the material price variance calculated. (1 mark)
  5. State ONE (1) possible reason for the labour rate variance calculated. (1 mark)

b) The Valuation Department of a large firm of surveyors wishes to develop a method of predicting its total costs in a period. The following past costs and activity levels have been recorded.

Period Number of Valuations (V) Total Cost (TC) GH¢
1 420 82,200
2 515 90,275
3 425 82,900
4 500 90,000

Required: i) Derive a formula for the total cost model for a period. (4 marks) ii) Evaluate the usefulness of the high-low method. (4 marks)

c) The trend line on its own is not sufficient to make forecasts for the future. Estimates of the size of the ‘seasonal’ variation for each of the different seasons are needed. The seasonal variation is then used to adjust a forecast trend.

Required: Explain TWO (2) models used to estimate seasonal variations. (7 marks)

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