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Account analysis (Inspection of accounts) method:
This method requires that departmental managers and the accountant inspect each item of expenditure within the accounts for some output level and then classify each of these items as wholly fixed, wholly variable or mixed.
A single average unit cost figure is selected for the items categorized as variable whereas a single total cost for the period is used for the items categorized as fixed.
Mixed costs are decomposed into their variable and fixed components.High low method (Two point method):
Under this method, records of costs in the previous period are reviewed and the costs of 2 periods are selected. These are the period with the highest level of outputs and the period with the lowest output. A line passing through these two points is then established and used in estimating costs.
EVALUATION OF THE REGRESSION MODEL The regression equation calculated above was based on the assumption that cost varied with the units produced. However, a number of different
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THE BREAK EVEN POINT
prepare all budgets
What would be the Nominal Payback Period for an account with 4% compounded annually for 5 years.
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