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Course name: Summer ACCT2218
Assignment name: Ch 19 ** BluePrint** (12pts) Cost-Volume-Profit
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Total Time spent: 16 hours, 53 minutes, 36 seconds
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Blueprint Problem: Cost Behavior and CVP Analysis - Mixed costs and the high-low
method
Mixed Costs
There are several ways to analyze mixed costs. First, you must be able to identify mixed
cost and distinguish it from costs that have only fixed cost or variable cost
characteristics. In the following table, identify which cost is described by each of the given
scenarios.
Scenario
A housekeeper makes $10 dollars per hour to clean hotel rooms.
Variable Cost
A cell phone plan costs $500 plus $0.50 for every minute of usage over
2,000 minutes.
Mixed Cost
A widget factory pays $5 per widget on material costs.
Variable Cost
A car lease costs $10,000 plus $5 for every mile driven over 10,000.
Mixed Cost
Rent expense for a factory costs $20,000 per month.
Fixed Cost
A widget factory buys a new machine with annual depreciation of
$8,000.
Fixed Cost
A farmer has a contract with a grocery chain that pays $5,000
Mixed Cost
Question: wrfm11h/1Blueprint Problem: Cost Behavior and CVP Analysis - Mixed costs and the high-low
method
Blueprint Problem: Cost Behavior and CVP Analysis - Mixed costs and the high-low method
1. 1.50
2. 1.50
3. 1.50
4. 1.50
5. 1.50
6. 1.50
7. 1.50
8. 1.50
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guaranteed money plus $2 for every bushel of produce above 50,000
bushels.
Correct
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Find the mixed costs, where there is both a fixed component (which does not
change with level of production) and a variable component (which does with level
of production).
The High-Low Method
The high-low method is the most basic method used for analyzing mixed costs. The
purpose of this analysis is to estimate the fixed and variable cost components of mixed
costs by comparing mixed costs at different levels along the relevant range for the
appropriate activity base. Conduct a cost analysis for the following business using the
high-low method.
The following table contains data for Van Haren Lawns, a landscaping business.
Month Lawns Mowed Total Cost
April 900 $44,400
May 740 41,840
June 1,200 49,200
July 1,300 50,800
August 1,700 57,200
For this business, the activity base is lawns mowed , and the
relevant range is 740 lawns 1,700 lawns.
Correct
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To determine the activity base, consider which column represents what the
company is primarily in business to do.
APPLY THE CONCEPTS: Use the high-low method to conduct a cost analysis
Conduct a cost analysis for Van Haren Lawns, a landscaping business, using the high-low
method. First, calculate the difference between the levels of activity and total cost at its
highest and lowest levels. Enter all amounts as positive numbers.
Lawns Mowed Total Cost
Highest level
1700
$
57200

Lowest level
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740
$
41840
Difference
960
$
15360

The total fixed cost for a business does not change with changes in
activity levels. This means that the difference in total cost between the highest and
lowest activity levels in the amount of $ 15360 is the change in variable
cost.
Correct
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Copy the lowest and highest levels of production and the associated cost from
the table above, and then compute the difference of each column between high
and low.
Calculating the Variable Cost per Unit, Using the High-Low Method
Next, calculate the variable cost per unit, using the high-low values. The variable cost per
unit , or in this case, the variable cost per lawn, is used to find the fixed cost.
Variable Cost per Lawn = ?
Variable Cost per Lawn = $
15360
=
16
per Lawn

960
Lawns
Correct
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The variable cost per unit is calculated by dividing the difference between the
costs associated with the highest and lowest activity levels by the difference in
activity of the highest and lowest activity levels.
Calculating Fixed Cost
The fixed cost at any given level of activity can now be estimated. By selecting either the
high or the low set of data and using the previously calculated variable cost per unit of
billable data in the formula for a straight line Y = fc + (vc x Units), where fc is fixed
costs and vc is variable cost per unit the total fixed costs can be determined.
Fixed Cost = ?
Highest level (1,700 lawns)
Fixed Cost = $
57200
( $
16
per lawn x 1,700)
Fixed Cost =
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$
30000
Lowest level (740 lawns)
Fixed Cost = $
41840
( $
16
per lawn x 740)
Fixed Cost = $
30000

Correct
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Use basic algebra to solve the equation for fc.
Determining the Total Cost Formula
Now that the fixed and variable cost elements are known, determine the formula that
mathematically displays the calculation of total cost with mixed cost elements.
Total Cost =
?
Total Cost = $
30000
+ ( $
16
x Activity Level)
After determining the formula for total cost, calculate what the total cost would be if the
company were to have an activity level of 1,500 lawns.
Total Cost = $
30000
+ ($
16
x 1,500)
= $
54000
Correct
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Now that you know fc, you can use the original formula to compute the total cost
Y:
Y = fc + (vc x Units)
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100% Correct Partially Correct Incorrect Needs Instructor Grading Not Intended for Grading
wrfm11h/1Blueprint Problem: Cost Behavior and CVP Analysis - Mixed costs and the high-low
method
Blueprint Problem: Cost Behavior and CVP Analysis - Mixed costs and the high-low method
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