Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

Financial Accounting

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

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Multiple Choice

Using the high-low method, which of the following best describes how to estimate both the fixed and variable components of a company's maintenance cost?

Use only the highest activity level and its corresponding cost to estimate both fixed and variable costs.

Add the highest and lowest total costs together and divide by two to find the average, which represents the fixed cost.

Calculate the variable cost per unit by dividing the change in total cost by the change in activity, then subtract total variable cost at either the high or low activity level from the total cost to find fixed cost.

Subtract the lowest activity level from the highest activity level, then multiply by the total cost to find the variable cost component.

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Verified step by step guidance

Step 1: Understand the high-low method. This method is used to separate the fixed and variable components of a mixed cost by analyzing the highest and lowest activity levels and their corresponding costs.

Step 2: Calculate the variable cost per unit. Use the formula: Variable Cost per Unit = (Change in Total Cost) / (Change in Activity Level). The change in total cost is the difference between the highest and lowest costs, and the change in activity level is the difference between the highest and lowest activity levels.

Step 3: Determine the total variable cost at either the high or low activity level. Multiply the variable cost per unit (calculated in Step 2) by the activity level (either high or low).

Step 4: Calculate the fixed cost. Subtract the total variable cost (calculated in Step 3) from the total cost at the corresponding activity level (either high or low). Fixed Cost = Total Cost - Total Variable Cost.

Step 5: Verify the results. Ensure that the fixed and variable costs calculated align with the given data and make sense in the context of the problem.