# High-Low method of Cost estimation

Problem 1.

Rio Bus Tours has incurred the following bus maintenance costs during the recenttourist season.

(The real is Brazil's national monetary unit. On the day this exercise was written, the real was

equivalent in .4378 US dollar.)

Month Miles traveled by the us Cost

Nov 8,500 11,400 real

Dec 10,600 11,600

Jan 12,700 11,700

Feb 15,000 12,000

Mar 20,000 12,500

Apr 8,000 11,000

1. Use the high-low method to estimate the variable cost er tour miles traveled and fixed cost per month.

2. Develop a formula to express the cost behavior exhibited by the compny's maintenance cost.

3. Predict the level of maintenance cost that woud be ncurred during a month when 22,000

tour miles are driven (real numbers)

4. Construct a Excel spreadsheet to solve all the preceding requirements. Show how the solution will

change if the following information changes: in Marh there were 21,000 miles traveled and the cost was

12,430 real.

https://brainmass.com/business/accounting/high-low-method-of-cost-estimation-205399

#### Solution Preview

1. Use the high-low method to estimate the variable cost for tour miles traveled and fixed cost per month.

In the high-low method we take the highest and the lowest values to separate the fixed and variable costs. The highest cost is 12,500 and highest miles are 20,000. The lowest cost is 11,000 and the lowest miles are 8,000. Next we take the difference. The difference of cost = 12,500-11,000=1,500 and the ...

#### Solution Summary

The solution explains the use of high low method in cost estimation