Segregation Of Semi Variable Expense Into Fixed And Variable Cost.

Q15. What are the various methods of segregation of semi variable expense into fixed and variable cost?
Ans.

  1. Graphical Method:On a graph paper, level of output are shown at x axis and total semi variable expense are shown at y axis. Where total semi variable expense cut y axis, it shows total fixed expense. These total fixed expense remain unchanged. Total semi variable expense less such fixed expense shows variable expense.
  2. High and Low Point Method: High and low point method indicate the higher amount of sales and lower amount of sale. It segregate semi variable expense in to variable and fixed by comparing total semi variable expense at two level of sales
    Variable Expense( as a % of Sales)= Change in Expense/ Change in Sales × 100
    Fixed Expense= Total Expense – Variable Expense
  3. Analytical Method: In such method, semi variable expenses are segregated into fixed and variable by analysis expense. For analysis purpose, help of specialist can be taken.
  4.  Level of Activity Method: It is same as high and low point method. Only difference is that it use level of activity I.e. Labor hours, unit etc. Rather than sales.
    Variable Expense Per Unit or Hour=Change in Expense/ Change in Unit or Hour
    Fixed Expense= Total Expense – Variable Expense
  5. Least Square Method: It is statistical method which use following equation:
    Y=a+BC
    where:
    Y= Total Expenses
    a=Fixed Cost
    b= Variable Cost Per Unit or Hour
    x=Unit or Hour

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