TOTAL = = FIXED + VARIABLE

COSTS COSTS COSTS

TOTAL = = FIXED + VARIABLE X ACTIVITY

COSTS COSTS COSTS
RATE

y = a + b x
FORMULA FOR A STRAIGHT LINE
 TOTAL = = FIXED + VARIABLE X ACTIVITY

COSTS COSTS COSTS

RATE

y = a + b x

DEPENDENT Y INTERCEPT SLOPE OF INDEPENDENT

VARIABLE THE LINE VARIABLE

HIGHEST ACTIVITY
y = a + b x
870 = a + 1.50 200
870 = a + 300.00
870-300 = a
570.00 = a
LOWEST ACTIVITY
y = a + b x
750 = a + 1.50 120
750 = a + 180.00
750-180 = a
570.00 = a
 y = a + b x
570.00 = 570.00 + 1.50 0OUTSIDE THE RANGE OF OBSERVATION
748.50 = 570.00 + 1.50 119OUTSIDE THE RANGE OF OBSERVATION
750.00 = 570.00 + 1.50 120RELEVANT RANGE
765.00 = 570.00 + 1.50 130RELEVANT RANGE
870.00 = 570.00 + 1.50 200 RELEVANT RANGE
871.50 = 570.00 + 1.50 201OUTSIDE THE RANGE OF OBSERVATION
874.50 = 570.00 + 1.50 203OUTSIDE THE RANGE OF OBSERVATION
THE DATA WERE COLLECTED IN THE RANGE OF 120 TO 200 IT IS UNSAFE TO EXTRPOLATE OUTSIDE THAT RANGE
 TC TC
870.0 - 750.0 = 120.0 Change in total costs
FC+VC FC+VC Change FC+ Change VC
570+30 - 570+180 = 0 120
CORRECT
Cost at Cost at
Highest Low est
Activity Activity
-
-
Highest Low est
Activity Activity

WRONG
Highest Low est
Cost - Cost
-

Highest Low est

Activity Activity