Health Care Finance
The High Low concept in accounting is a quick and simple way of calculating fixed and also variable costs in a mixed cost scenario. The simplicity of its calculations and the speed is its strongest advantages as it relies on two sets of figures from the mixed costs to arrive at the required values however anomalous figures may result in misleading calculations hence inaccurate figures.
|Month||Total No of Training Packs||Total Cost||Comm College No. Packs||Comm Col Cost|
Question one requires the omission of the community training packs. The highest numbers of packs were registered in September where 1100 packs were utilized at a total cost of $7150 while the lowest numbers of packs were registered in August and December where only 100 packs were utilized at a cost of $1010.
|1100-100 = 1000||7150 – 1010 = 6140|
|Divide||6140/1000 = 6.14|
The estimated variable cost per unit is $6.14. The fixed cost for the highest values = total costs minus variable costs. Total costs = $7150 less variable costs equals to 1100 x 6.14 = 7150 – 6754 = $396.
For the lowest = Total costs = $1010 less variable costs equals to 100 x 6.14 = 1010 – 614 = $396. Fixed costs = $396 (Principles of Accounting.com, n, d). The other costs are:
|Month||Total No of Training Packs||Total Cost||Variable Costs||Fixed costs|
2). The major disadvantage of high low is its restriction to the use of only two sets of values and when the mixed costs are anomalous then it may lead to inaccurate results like in the case of the figures below where the fixed costs are varied. The best method would be to use the least squares method which literally overcomes the disadvantage of high low as it utilizes many values when calculating the fixed and variable costs.
References Principles of Accounting.com (n, d) Chapter 18: Cost-Volume-Profit and Business Scalability retrieved July 17, 201