Mini-Video – Accounting 2 – Chapter 21 “The High-Low Method”

Now, once we determine once we determine,
folks, that there is a relationship between two variables, we still want to think of
the equation of that line, the Y amounts to A plus B times X. One manner in which we can do that, kind of a quick
and also unclean little way, is what is referred to as the highlow method. As well as the goal, once again, is to determine
the formula of the mixed price. That Y equals A plus B times X, okay? Now I'' ve found out that the best way to educate
highlow method is really just to do an instance. So we'' re mosting likely to do an example here. All? Okay, right here is a collection of months as well as the systems
created and the complete expense for each and every. As well as let'' s state we really feel that these, this is
a situation that is a mixed cost.And we did

that, possibly, by plotting out
a scatter layout. Okay, the very first point that we wish to do right here
is determine which of these columns is the X variable and which one of these is the Y.
variable. Okay, well which is the X variable? Units produced. Okay. As well as complete cost is the Y variable, okay? Now what we do, come off that if you would.
and show me, is when we'' ve identified the X and also the Y there we go, reveal everything if you.
can.Then what

we intend to do, in fact, is we kind.
Simply look at your X ' s. And I desire you to establish which of these. Cover up the Y'' s so you ' re not also attracted.
to look at them ideal now.Which of these of these is the highest possible X? Which of these is the most affordable X? Okay. So going back to the computer system, as soon as you do.
> > February, alright? That'' s the high. What we ' re going to do'then, as soon as we ' ve.
The very first thing that we'' re going to do is. Allow me go back over the document video camera,.
All? Okay. The very first point we'' re going to address for is.
B, which is the variable cost. Well that equals the change in Y over the.
The adjustment in Y is is it 29,000 minus 20,500? > > Okay. Divided by the adjustment in X of the high and.
the nadir. To make sure that would be 67,500 devices minus 17,500.
devices; is that correct? >>> > Yup. >>> > So if you compute that out, that appears.
to 17 cents an unit. That is the B in our line. Are you with me? Okay. Now the following action is we wish to address for.
The way we'' re going to do that is we'' re going. Now what we'' re going to do is'we ' re going. Going back to the computer, we'' re going.
to make use of either this X and also Y up here or this down below. Either way it'' ll give us the same response. I usually utilize the low one because it appears.
like it'' s occasionally less complicated math, okay? What is the Y what is Y at the low point? >> >

>>> 20,500. > > 20,500.'A is what we ' re trying to resolve for. What is X at the reduced? >>> > 17,500. > > 17,500; is that correct? Okay. So when you do that you obtain 20,500 equates to.
A plus let'' s see what.17 times 17,500 amounts to. I think that ' s 2,975 >>. > > I can barely see it. >>> > Thank you. So 20,500 amounts to A plus 2,975. So what does An equivalent? 17,525? Okay. So we now have our B and we now have our A,.
fine? Currently let me show you just how I put on'' t like you to. reveal this solution. Some students will certainly write this out, they'' ll. say Y amounts to 17,525 plus.17 X. Well, yeah, kind of. However allow'' s proceed and define these variables.
for this particular situation. What does Y, in this situation, equal? We'' re recalling at the computer, Y equates to.
overall costs, right? So allow'' s state overall prices equals $ 17,525 plus.
— well, what does X equivalent in this instance? Systems produced, right? Let'' s state 17 cents per system generated times.
Due to the fact that now what can we do? Well, now what we can do is once we have that.
formula right there, let'' s claim we expect a task level of 20,000 units. Well, what would certainly we expect to be our overall.
expenses? Well, we can plug it right into that formula and also.
we can develop a response of 20,925. Are you with me? Okay, that'' s why we desire that formula. So as supervisors (inaudible) expenses. (Faint) costs is a significant part of running.
a business. Are you with me?.

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