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Cost classification

5.2 High-low method with stepped fixed costs

The high/low method can still be used to estimate fixed and variable costs.

 Choose the two activity levels where the fixed costs remain unchanged and
calculate the variable cost per unit and the total fixed cost using the high/low
technique.

 Adjustments may need to be made to the fixed costs when calculating the total
cost for a new activity level.

5.3 High-low method with changes in variable cost per unit

Sometimes there may be changes in the variable cost per unit; the high/low method
can still be used to determine the fixed and variable elements of semi-variable costs.
Choose activity levels where the variable costs per unit remain unchanged as
calculate as per with stepped fixed costs.

Illustrations and further practice

Now try TYU question 8 from Chapter 4

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