Question

please show all steps so I can fully understand how to solve. thank you

You are given the following data for Skylar Ltd.: Direct Labour Hours Overhead Costs 25700 $630800 January 32600 $700100 February 45117 $887306 March 37500 $720500 April 40349 $909220 May 21235 $624133 June July 23700 $651000 August 39200 $759000 September 41884 $751261 October 23082 $614932 November 25200 $620100 December 30100 $682000 Using the high-low method, what is the variable overhead cost per direct labour hour? Select one: a. $11.02 b.517.04 c. $6.16 d. 512.32

Answer 1

High low method is a mathematical technique to used to determine the fixed and variable element of a historical cost that is partially fixed and partially variable.

High low method splits fixed and variable components of combined cost by using following formula

Variable cost per unit = (Highest activity cost - Lowest activity cost) / (Highest activity units - Lowest activity units).

Step 1 - Identify highest and lowest activity. Always identify highest and lowest activity first. In the given example labor hours are activity. Highest labor hours are 45117 and labor hours are 21235.

Step 2 - Identify corresonding cost with these activities. So corresponding cost are $ 887306 and $ 624133.

Step 3 - calculate variable cost per unit as per above formula.

(887306- 624133) / (45117 - 21235) = $ 11.02