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    The document discusses semi-variable costs, which are partly fixed and partly variable. It introduces the high-low method for estimating fixed and variable costs by comparing the highest and lowest activity levels in a data set. An example is provided to illustrate calculating fixed and variable costs using the high-low method. Regression analysis is also introduced as a technique to calculate the equation of best fit for linearly correlated data, which can be used to separate fixed and variable costs.

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    The document discusses semi-variable costs, which are partly fixed and partly variable. It introduces the high-low method for estimating fixed and variable costs by comparing the highest and lowest activity levels in a data set. An example is provided to illustrate calculating fixed and variable costs using the high-low method. Regression analysis is also introduced as a technique to calculate the equation of best fit for linearly correlated data, which can be used to separate fixed and variable costs.

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    6 views1 page

    Cost

    Uploaded by

    DEODATUS
    The document discusses semi-variable costs, which are partly fixed and partly variable. It introduces the high-low method for estimating fixed and variable costs by comparing the highest and lowest activity levels in a data set. An example is provided to illustrate calculating fixed and variable costs using the high-low method. Regression analysis is also introduced as a technique to calculate the equation of best fit for linearly correlated data, which can be used to separate fixed and variable costs.

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    SEMI-VARIABLE COSTS

    1. Introduction

    The chapter relates to semi-variable costs i.e. part fixed and part variable. It may be necessary for you in
    the examination to identify the fixed and variable elements and in this chapter we will revise the ‘high-
    low’ method and also explain Regression Analysis.

    2. High-Low Method

    This is a quick and easy approach that estimates fixed and variable costs by comparing the highest and
    lowest activity levels.

    Example 1

    Electricity costs for the first 6 months of the year are as follows:

    Units produced Cost ($)

    January 340 2,260

    February 300 2,160

    March 380 2,320

    April 420 2,400

    May 400 2,300

    June 360 2,266

    Calculate the fixed and variable costs using the high-low method

    Regression

    If there is a reasonable degree of linear correlation between two variables, we can use regression
    analysis to calculate the equation of the best fit for the data. This is known as least squares linear
    regression.

    If the equation relating two variables, × and y, is

    y = a + bx

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