High Low method Formula

High Low method Formula

Variable cost can be calculated from the following formula. This formula knows as high low methods. High low method is used to calculate the variable & fixed cost.

Variable Cost =            Cost (High Activity)- Cost (low activity)

                                        High activity – Low Activity

Example

110,000               200,000

60,000                150,000

70,000                180,000

Solution

= (200,000-150,000)/110,000-60,000

= 50,000/50,000

= 1 $ (Variable Cost)

Expected Value Formula

Expected Value Formula

Expected is weighted average value calculated with the help of different probabilities. Expected value is a way to measure the average results.

Expected Value = ∑Px

P=Probability

Value=

Role of Expected Value

Project shall be selected if the expected value of NPV is positive.

Example

Probabilities          NPV

.2                     (30,000)

.3                     20,000

.5                      5,000

Solution

Probabilities          NPV            ∑Px

.2                     (30,000)         (6,000)

.3                      20,000            6,000

.5                      5,000             2,500

Expected Value                      2,500