COST ACCOUNTING AND CONTROL – Solutions Manual

CHAPTER 3
COST BEHAVIOR: ANALYSIS AND USE
Answer to Test Material 3-1
Requirement (1)
The first step in the high-low method is to identify the periods of the lowest and
highest activity. Those periods are November (1,100 patients admitted) and June
(1,900 patients admitted)

The second step is to compute the variable cost per unit using those two data
points:
Month
Number of
Patients Admitted
Admitting
Department Costs
High activity level (June) 1,900 P15,200
Low activity level (November) 1,100
12,800
Change
800
P 2,400
The third step is to compute the fixed cost element by deducting the variable cost
element from the total cost at either the high or low activity. In the computation
below, the high point of activity is used:
Fixed cost element = Total cost – Variable cost element
= P15,200 – (P3 per patient admitted
x 1,900 patients admitted)
= P9,500
Requirement (2)
The cost formula is Y = P9,500 + P3X.