Page 16 - Managerial Accounting-MGT 145

Module 3: Decision Making
(Cost Estimation/Prediction Methods)

Three (3) common methods are used to estimate or predict
fixed and variable costs:

1. High-low method
2. Scatter graph method
3. Regression analysis

High-low Method Procedure
Step 1. Identify the high and low activity levels from the data
Step 2. Calculate the variable cost per unit (v).
Step 3. Calculate the total fixed cost (f).
Step 4. Let (Y) be the estimated/predicted total production

costs and (X) be a certain level of production
Step 5. State the results in equation result (Y = f + vX)