1. High-Low Points Method
BEYONDBIKES.COM considers electricity a mixed cost. By using a scatter chart, George has determined that there is a relationship between electricity expense and the number of hours per month the store is open. During the past year, electricity expense totaled $7200 in the month that the store was open 1200 hours and $4200 in the month that it was open 300 hours. What fixed monthly cost and hourly rate should George use to estimate electricity expense for the upcoming year?
2. High/Low Method
BEYONDBIKES.COM frequently hires temporary secretarial help and also pays overtime wages to its full-time secretaries. Management believes that the need for additional secretarial help is based on either total sales or the number of employee hours worked. I have already determined this by preparing a Scatter Graph and it is TOTAL SALES! Data from last yearâ??s records are shown below:
Month Total Total Total
Secretarial Sales Number
Expense of Employee
January $13,000 $90,000 20,000
February $14,000 $100,000 10,000
March $14,000 $110,000 25,000
April $16,000 $160,000 30,000
May $12,000 $80,000 14,000
June $17,000 $180,000 28,000
July $20,000 $240,000 30,000
August $15,000 $150,000 20,000
September $22,000 $300,000 30,000
October $19,000 $200,000 15,000
November $20,000 $250,000 18,000
December $15,000 $130,000 12,000
Using the appropriate cost driver (TOTAL SALES) use the high-low points method to calculate the variable rate and the fixed cost per month.
HINT: You do not need Employee Hours to solve this!
A high-low points method and the high/low methods are examined.