Week 6 - High Low Method Flashcards
1
Q
What is the first step?
A
To look for the highest and lowest levels of activity
2
Q
What causes the cost to happen?
A
The activity
3
Q
What is the second step?
A
To work out the difference in the highest and lowest level of activity, and their corresponding cost
4
Q
What is the difference between the highest and lowest level of activity?
A
Variable cost
5
Q
How do you then work out the variable cost?
A
Divide the cost by the level of activity
6
Q
Once we have the value of the variable cost, what do we do?
A
Substitute the lower activity, cost and variable cost all into the equation of a line, y = mx + c. This gives us the fixed cost
