Management Accounting: High-Low Method, Relevant Costs, and Variances

Management Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
Question 2........................................................................................................................................3
(i)..................................................................................................................................................3
(ii)................................................................................................................................................4
Question 4........................................................................................................................................4
Question 5........................................................................................................................................6
(a).................................................................................................................................................6
(b).................................................................................................................................................7
(c).................................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
The report prepared as under takes in account computation and evaluation with the help of
high low method, what level of total working cost is expected, incremental and opportunity cost.
The report further takes in account how management accounting works, what is the useful uses
of various costs and expenses and in what ways they would be assisting business to grow
(Adamenko, 2018). Management accounting is the act of distinguishing, estimating, examining,
deciphering, and transmitting monetary data to managers in order to achieve the goals of the
association. It is different from monetary bookkeeping because the planning motivation behind
administrative bookkeeping is to help customers within an organization to make educated
business choices.
Question 1
With the help of the high-low method, evaluate:
High low method: In matter of cost accounting the high low method can be explained as a way to
attempt for separating variable and fixed costs given a limited quantity of data. The high low
method is counting and involving taking the highest level of operational activity and the lowest
level of activity and also carrying out comparison among the total expenses at every level.
The variable cost of per occupied bed on a regular basis.
Variable cost: It can be defined as a corporate expense which changes in proportion to how much
an organisation carries out sales or production. Variable costs decrease or increase which would
be depending on a company’s sales volume or company’s production – They would rise as
production would rise and fall as production would diminish (Boyle and Hermanson, 2020).
Difference in cost:
Monthly operating cost at 80% occupancy:
550 x 80%= 440 rooms
440 x £32 x 30 days 422,400
Monthly operating cost at 60% occupancy (which is given) 399,300
Difference in cost 23,100
Difference in activity:
80% occupancy (550 x 80% x 30days) 13,200

60% occupancy (550 x 60% x 30days) 9,900
Distinction in activity = 3,300
Change in cost / change in activity = 23,100/3,300 = £7 per room per day
Monthly operating cost at 80% occupancy (above)
Less variable cost:
422,400
440 beds x 30daysx £7 92,400
Fixed operating cost per month 330,000
550 beds x 70%
= 385 beds occupied
(b) The total fixed operating costs per month. (6 marks)
Monthly operating cost at 80% occupancy (above) Less
variable cost:
422,400
440 beds x 30daysx £7 92,400
Fixed operating cost per month 330,000
550 beds x 70%
= 385 beds occupied
2. Assume an occupancy rate of 70% per month. What quantity of total working cost would you
expect the hospital to experience?
Fixed cost 330,000
Variable costs: 385 beds x 30days x £7 80,850
Total expected costs £410,850
3. At an activity level of 6,800 units, Pen Corporation's total variable cost is £125,188 and its
total fixed cost is £164,152. Required for the activity level of 7,100 units, compute:
a) The total variable cost;
 The total fixed cost;
 The total cost;