1. Principles of Cost Analysis and Management
Determine the Fixed and Variable Components of a Mixed Cost Using the High-Low Method
Principles of Cost Analysis and Management
Show Slide #1: Determine the Fixed and Variable Components of a Mixed Cost Using the High-Low Method
Title: Determine the Fixed and Variable Components of a Mixed Cost Using the High-Low Method
References: FM 1-06 Financial Management Operations, Lesson Created Handout, Notes and Template.
Section I. Administrative Data
Academic Hours/Methods
01 hrs. / 05 min. DSL (large or small group discussion)
00 hrs. / 45 min. PE (practical exercise (Hands On)
00 hrs. / 00 min. Test
00 hrs. / 00 min. Test Review
00 hrs. / 00 min. Total Hours
Section II. Introduction:
Method of Instruction: DSL (large or small group discussion)
Facilitator's to Learner Ratio: 1:25
Time of Instruction: 00 hrs. / 05 min.
Media: PowerPoint Presentation
Motivator (Concrete Experience 5 minutes): Discuss with Learners what is meant by fixed or variable components? Is there only one way to segregate the cost? Ask Learners what are their thoughts on the discussion.
Facilitator's Material: Each primary Facilitator should possess a lesson plan, slide deck, course handouts, practical exercise with answer key, excel template, case studies and summary sheet containing FM 1-06.
Learner’s Material: Learners should possess course handouts, practical exercises, summary sheet containing FM 1-06, case studies, excel template with access to Bb and standard classroom supplies.
Note: "All required references and technical manuals will be provided by the School House“

2. Terminal Learning Objective
Action: Determine the Fixed and Variable Components of a Mixed Cost Using the High-Low Method
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for International Learners):
Identify High-Low Method
Calculate Fixed and Variable Cost Components from Mixed Cost Data
Show Slide #2: Terminal Learning Objective
Read TLO
Action: Determine the Fixed and Variable Components of a Mixed Cost Using the High-Low Method
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for International Learners):
Identify High-Low Method
Calculate Fixed and Variable Cost Components from Mixed Cost Data
Safety Requirements: In a training environment, leaders must perform a risk assessment in accordance with DA PAM , Risk Management. Leaders will complete a DD Form 2977 DELIBERATE RISK ASSESSMENT WORKSHEET during the planning and completion of each task and sub-task by assessing mission, enemy, terrain and weather, troops and support available-time available and civil considerations (METT-TC). Local policies and procedures must be followed during times of increased heat category in order to avoid heat related injury. Consider the work/rest cycles and water replacement guidelines IAW TRADOC Regulation
Risk Assessment Level: Low.
Environmental Considerations: Environmental protection is not just the law but the right thing to do. It is a continual process and starts with deliberate planning. Always be alert to ways to protect our environment during training and missions. In doing so, you will contribute to the sustainment of our training resources while protecting people and the environment from harmful effects. Refer to FM Environmental Considerations and GTA ENVIRONMENTAL-RELATED RISK ASSESSMENT.
Evaluation: Learners will conduct a Practical Exercise on Determining the Fixed and Variable Components of a Mixed Cost using the High-Low Method to assist and prepare learners for the Principles of Cost Analysis and Management 2 Exam at the end of Week Two.
Instructional Lead in: This is a good chance to find out what Learners understand about “High-Low Method and calculating Fixed and Variable Cost.” Let them give their suggestions and write them up on the board.
Depending upon the Learners’ level of sophistication and knowledge, you will get answers from a variety of ranges:
Example: How can we determine which costs are fixed and which are variable?
Note: Below are some examples of topics that should come from the learners to demonstrate if they have any knowledge of the subject(s) in the lesson.
cost increases as output increases,
cost elements may be mixed, or even semi-variable. Utilities, for example are generally a
mixed cost
fixed component
variable

3. How can we determine which costs are fixed and which are variable?
Identify High-Low Method
How can we determine which costs are fixed and which are variable?
Show Slide #3: Identify High-Low Method
Learning Step Activity 1: Identify High-Low Method
Method of Instruction: DSL (large or small group discussion)
Facilitator's to Learner Ratio: 2:25
Time of Instruction: 00 hrs. / 20 min.
Media: Power Point, Printed Reference Material
21st Century Soldier Competencies: The 21st Century Soldier Competencies are essential to ensure Soldiers and leaders are fully prepared to prevail in complex, uncertain environments. Throughout the lesson discussions, seek opportunities to link the competencies with the lesson content through the Learner’s experiences.
Facilitator's Note: There are many ways to describe and explain the high-low method and calculation for fixed and variable cost components. Before facilitating this lesson, ask the Learners which of the 21st Century Soldier Competency do they think pertain to this lesson? Facilitate a discussion on the answers given and at the end of the lesson revisit it and see if the Learners still believe their choice are the same.
Note: For this lesson these competencies should be talked about.
#6. Communication and engagement (oral, written, and negotiation)
#7. Critical thinking and problem solving
#8. Cultural and joint, interagency, intergovernmental, and multinational competence
#9. Tactical and technical competence (full spectrum capable)
Introduction:
Q: How can we determine which costs are fixed and which are variable?
We know that total cost increases as output increases, but some of our cost elements may be mixed, or even semi-variable.
Utilities, for example are generally a mixed cost.
There is a fixed component and a variable component in the utility bill itself.
There is probably a fixed component in the usage as well: a certain amount of electricity is needed to keep the building habitable, and then as occupancy and productive output increases, more electricity is used.
Q: How do we determine the fixed and variable component of the utility cost?
Note: No specific answer expected except discussion with learners.

4. Need for High-Low Method
Fixed and variable components of cost are not always identifiable
This is especially true in service activities
Sometimes costs aren’t strictly fixed and variable but mixed or semi-variable
The High-Low Method permits further analysis by finding an approximate value for variable and fixed costs
Show Slide #4: Need for High-Low Method
Identify High-Low Method (Cont.)
Introduction: (Cont.)
Fixed and variable components of cost are not always identifiable, as we described in our leadoff example.
This is especially true in service activities.
It is generally more difficult to identify variable costs when the unit of output is not a tangible product.
Sometimes costs aren’t strictly fixed and variable but mixed or semi-variable.
It is important to recognize that fact, especially when incremental cost is relevant to the decision. However, multivariate and semi-variable costs complicate analysis because they represent equations with multiple variables.
The High-Low Method permits further analysis by finding an approximate value for variable and fixed costs.
By definition this cost will be an average. It’s important to understand the limitations of an average. It is useful when all units are homogeneous in nature because they simplify the equations and analysis. They are misleading when units of output are dissimilar. Before applying the High-Low method, it’s important to question whether the units are homogeneous.

5. High-Low Assumptions
The relationship between the cost at the highest level of output and the cost at the lowest level of output is linear
This linear relationship reasonably represents the relationship between costs at other levels of output
The change in cost from the highest level to the lowest level is due to the change in units from the highest level to the lowest:
Change in cost / change in units = VC/unit
Show Slide #5: High-Low Assumptions
Identify High-Low Method (Cont.)
Introduction: (Cont.)
The relationship between the cost at the highest level of output and the lowest IS linear because any two points represent a linear relationship.
Facilitator’s Note: Inform learners that they’ll see that on a graph in a minute.
A bigger assumption is that the linear relationship between the high and the low is representative of the relationship at other levels of output.
We also must assume that the change in cost from the highest to the lowest level is entirely due to the change in units.
This is true if there is, indeed, a fixed component to the cost.
The elements of cost that are truly fixed will not change as level of output changes.

6. High-Low Calculation Step 1: Calculate Variable Cost $/unit:
Change in cost / change in units or:
$ at high output – $ at low output
# Units at high output – # Units at low output
Step 2 Calculate Fixed Cost :
Total Cost – Variable Cost or:
Total $ high output – (VC $/unit * # Units high output)
Step 1: Calculate Variable Cost $/unit:
Change in cost / change in units or:
$ at high output – $ at low output
# Units at high output – # Units at low output
Step 2 Calculate Fixed Cost :
Total Cost – Variable Cost or:
$ high output – VC $/unit * # Units high output
Step 1: Calculate Variable Cost $/unit:
Change in cost / change in units or:
$ at high output – $ at low output
# Units at high output – # Units at low output
Step 2 Calculate Fixed Cost :
Total Cost – Variable Cost or:
$ high output – VC $/unit * # Units high output
Show Slide #6: High-Low Calculation
Identify High-Low Method (Cont.)
Facilitator's Note: This is an animated slide, click on mouse or space bar for transition and explanations for each segment.
1st Mouse Click View:
Step 1: Calculate Variable Cost $/unit:
Change in cost / change in units or:
$ at high output – $ at low output
# Units at high output – # Units at low output
The change in cost between the highest and lowest levels of output is due to change in number of units of output.
$ at high output – $ at low output = the change in cost from highest output to lowest output
# Units at high output – # Units at low output = the change in units from highest output to lowest output
2nd Mouse Click View:
Step 2 Calculate Fixed Cost :
Total Cost – Variable Cost or:
Total $ high output – (VC $/unit * # Units high output)
Once we know the variable cost per unit, we can work backward to calculate the fixed cost.
We know that:
Total cost = Fixed cost + variable cost
So, Total cost – variable cost = fixed cost

7. Total cost = VC $/unit * # units + Fixed cost
High-Low Calculation
Step 3: Develop the cost expression for total cost:
Total cost = VC $/unit * # units + Fixed cost
This equation can be used for:
Planning for various levels of output
Break even analysis (Day 9)
Show Slide #7: High-Low Calculation (Cont.)
Identify High-Low Method (Cont.)
Step 3: Develop the mixed cost expression
VC $/unit * # units + Fixed cost
This equation can be used for:
Planning for various levels of output
Break even analysis (Day 9)

8. High-Low Example
The purchasing department shows the following activity for the last four months:
Month POs Processed Total Costs
Jan $2500
Feb $2200
Mar $3000
Apr $2750
Show Slide #8: High-Low Example
Identify High-Low Method (Cont.)
Activity step 2 Demonstration problem:
Calculate Fixed and Variable Cost Components from Mixed Cost Data
The purchasing department shows the following activity for the last four months:
Month POs Processed Total Costs
Jan
Feb
Mar
April
Look at the pattern. As purchase orders processed increases, total costs increase.
When purchase orders are 80, cost is $2200.
At an output level of 100 purchase orders, cost is $2500.
At 120 purchase orders, total cost is $3000.

9. High-Low Example
The manager of the purchasing department sees that total costs increase as Purchase Orders increase
However, he knows that the cost is not strictly variable
He would like to segregate the variable component of the cost from the fixed cost
Show Slide #9: High-Low Example (Cont.)
Identify High-Low Method (Cont.)
Activity step 2 Demonstration problem:
Calculate Fixed and Variable Cost Components from Mixed Cost Data
The manager of the purchasing department sees that total costs increase as Purchase Orders increase
However, he knows that the cost is not strictly variable
He would like to segregate the variable component of the cost from the fixed cost

10. LSA #1 Check on Learning
Q1. In the High-Low method, the change in cost from the high level of output to the low level of output is assumed to be caused by…?
A1. The change in number of units
Q2. How is fixed cost calculated using the High-Low method?
A1. Total cost at high level minus variable cost at high level.
Show Slide #10: LSA #1 Check on Learning
Facilitator's Note: Ask check on learning question, facilitate discussion on answers given.
Q1. In the High-Low method, the change in cost from the high level of output to the low level of output is assumed to be caused by…?
A1. The change in number of units
Q2. How is fixed cost calculated using the High-Low method?
A2. Total cost at high level minus variable cost at high level.

11. LSA #1 Summary
Identified need for High-Low Method and finding an approximate value for variable and fixed costs.
High-Low Assumptions relationship between costs at other levels of output.
Went over and conducted some High-Low Calculations and examples.
Show Slide #11: LSA #1 Summary
Facilitator's Note: In this lesson, we discussed:
Identified need for High-Low Method and finding an approximate value for variable and fixed costs.
High-Low Assumptions relationship between costs at other levels of output.
Went over and conducted some High-Low Calculations and examples.

12. Graph of Actual Costs Cost at 120 POs = $3000 Cost at 80 POs = $2200
Show Slide #12: Graph of Actual Costs
2. Learning Step Activity 2: Calculate Fixed and Variable Cost Components from Mixed Cost Data
Method of Instruction: DSL (large or small group discussion)
Facilitator's to Learner Ratio: 2:25
Time of Instruction: 00 hrs. / 25 min.
Media: Power Point, Printed Reference Material
Facilitator's Note: Before presenting the slides following this slide, facilitate a discussion on how poor cost information may affect decisions.
Demonstration problem on how to calculate Fixed and Variable Cost Components from Mixed Cost Data:
This graph plots number of purchase orders against total cost.
The X axis represents number of purchase orders.
The range is from 80 to 100 purchase orders.
Cost at 80 POs = $2200. Cost at 120 POs = $3000
Cost at 80 POs
= $2200
X-Axis represents number of Purchase Orders

13. Multiple Linear Relationships Exist
Essentially any two points on the graph represent a linear relationship
Show Slide #13: Multiple Linear Relationships Exist
Graph of Actual Costs (Cont.)
Demonstration problem on how to calculate Fixed and Variable Cost Components from Mixed Cost Data (Cont.)
Multiple linear relationships are possible – essentially a line between any two points on the graph could be chosen.
The dotted lines represent all of these options. Or, using regression analysis, the “least error” method, the line may not actually intersect any of the points.
The solid gray line represents the regression line. It touches the highest level, but doesn’t intersect any of the other points on the graph.
X-Axis represents number of Purchase Orders

14. High-Low Relationship
High-Low Method assumes the relationship between highest point and lowest point is representative of the whole
Show Slide #14: High-Low Relationship
Graph of Actual Costs (Cont.)
Demonstration problem on how to calculate Fixed and Variable Cost Components from Mixed Cost Data (Cont.)
The High-Low method uses the simplifying assumption that the line between the highest and lowest point approximates variable cost.
It gives a standardized protocol for segregating the fixed and variable components of cost, and it brings the calculation down to simple math.
It seems to be a reasonable assumption in this particular case.
It is actually very close to the regression trend line.
And, it falls in between the other two data points, so that it is reasonable to accept this relationship as representative of the whole.
X-Axis represents number of Purchase Orders

15. Calculate Unit Variable Cost
Change in Cost / Change in Units =
Total $ at high output – Total $ at low output
# Units at high output – # Units at low output
($3000 – $2200) / (120 units – 80 units)
$800/40 units
$20/unit
Change in Cost / Change in Units =
Total $ at high output – Total $ at low output
# Units at high output – # Units at low output
($3000 – $2200) / (120 units – 80 units)
$800/40 units
$20/unit
Change in Cost / Change in Units = Total $ at high output – Total $ at low output # Units at high output – # Units at low output ($3000 – $2200) / (120 units – 80 units) $800/40 units $20/unit
Show Slide #15: Calculate Unit Variable Cost
Demonstration problem on how to calculate Fixed and Variable Cost Components from Mixed Cost Data (Cont.)
Facilitator's Note: This is an animated slide, click on mouse or space bar for transition and explanations for each segment.
The first step in the process is to calculate the variable cost per unit.
Again, the assumption is that the change in cost is due to the change in number of units.
Facilitator’s Note: Let the learners set up the equation before moving on to the next slide. Or, complete the calculation on the board or overhead projector and use the next slide to confirm your calculation.
Change in Cost / Change in Units
Total $ at high output – Total $ at low output
# Units at high output – # Units at low output
1st Mouse Click View:
The equation should be: ($3000 – $2200) / (120 units – 80 units)
2nd Mouse Click View:
The solution is:
$800/40 units =
$20/unit
The average variable cost per unit between the highest level of output and the lowest is $20/unit
Facilitator’s Note: Inform learners that now we can use this information to complete step 2.

16. Calculate Fixed Cost Total Cost – Variable Cost =
Total $ high output – VC $/unit * # Units high output
$3000 – ($20/unit * 120 units)
$3000 – ($20 * 120 )
$3000 – $2400
= $600
Total Cost – Variable Cost =
Total $ high output – VC $/unit * # Units high output
$3000 – ($20/unit * 120 units)
$3000 – ($20 * 120 )
$3000 – $2400
= $600
Total Cost – Variable Cost =
Total $ high output – VC $/unit * # Units high output
$3000 – ($20/unit * 120 units)
$3000 – ($20 * 120 )
$3000 – $2400
= $600
Total Cost – Variable Cost =
Total $ high output – VC $/unit * # Units high output
$3000 – ($20/unit * 120 units)
$3000 – ($20 * 120 )
$3000 – $2400
= $600
Show Slide #16: Calculate Fixed Cost
Demonstration problem on how to calculate Fixed and Variable Cost Components from Mixed Cost Data (Cont.)
Facilitator's Note: This is an animated slide, click on mouse or space bar for transition and explanations for each segment.
Step 2 of the process is to calculate fixed cost.
Fixed cost is the difference between total cost at the high output and variable cost at the high output.
Total Cost – Variable Cost =
Total $ high output – VC $/unit * # Units high output
Facilitator’s Note: Inform learners to set up the equation before proceeding to the next slide.
1st Mouse Click View:
The equation is: $3000 – ($20/unit * 120 units)
2nd Mouse Click View:
To solve:
$3000 – ($20/unit * 120 units)
Using algebraic rules on our units of measure, we cancel out “units”.
The equation becomes: $3000 – ($20 * 120 )
3rd Mouse Click View:
From this point the calculation is simple arithmetic:
$3000 – $2400
$600

17. Express the Mixed Cost Relationship
Total Cost = VC $/Unit * # Units + Fixed Cost
Total Cost = $20/Unit * # Units + $600
Total Cost = VC $/Unit * # Units + Fixed Cost
Total Cost = $20/Unit * # Units + $600
Show Slide #17: Express the Mixed Cost Relationship
Demonstration problem on how to calculate Fixed and Variable Cost Components from Mixed Cost Data (Cont.)
Facilitator's Note: This is an animated slide, click on mouse or space bar for transition and explanations for each segment.
Facilitator's Note: Inform learners that the third step is to develop the cost expression.
The generic equation is:
Total Cost = VC $/Unit * # Units + Fixed Cost
Facilitator’s Note: Inform learners to set up develop the cost expression before continuing to the next slide.
Mouse Click View:
The cost expression is:
Total Cost = $20/Unit * # Units + $600

18. Using the Cost Expression
For planning:
If planned output in May is 60 purchase orders, what is our expected cost?
$20/PO * 60 POs + $600 = $1800
If planned output in June is 130 purchase orders?
$20/PO * 130 POs + $600 = $3200
For planning:
If planned output in May is 60 purchase orders, what is our expected cost?
$20/PO * 60 POs + $600 = $1800
If planned output in June is 130 purchase orders?
$20/PO * 130 POs + $600 = $3200
For planning:
If planned output in May is 60 purchase orders, what is our expected cost?
$20/PO * 60 POs + $600 = $1800
If planned output in June is 130 purchase orders?
$20/PO * 130 POs + $600 = $3200
Show Slide #18: Using the Cost Expression
Demonstration problem on how to calculate Fixed and Variable Cost Components from Mixed Cost Data (Cont.)
Facilitator's Note: This is an animated slide, click on mouse or space bar for transition and explanations for each segment.
For planning:
If planned output in May is 60 purchase orders, what is our expected cost?
If planned output in June is 130 purchase orders?
1st Mouse Click View:
$20/PO * 60 POs + $600 = $1800
2nd Mouse Click View:
$20/PO * 130 POs + $600 = $3200

19. Using the Cost Expression (Cont.)
For comparison and learning
April’s cost of $2750 for 105 POs was higher than expected. Why?
Expected cost = $20/PO * 105 POs + $600 = $2700
January’s cost of $2500 for 100 POs was lower than expected. Why?
Expected cost = $20/PO * 100 POs + $600 = $2600
What did we do differently? What can we learn?
For comparison and learning
April’s cost of $2750 for 105 POs was higher than expected. Why?
Expected cost = $20/PO * 105 POs + $600 = $2700
January’s cost of $2500 for 100 POs was lower than expected. Why?
Expected cost = $20/PO * 100 POs + $600 = $2600
What did we do differently? What can we learn?
For comparison and learning
April’s cost of $2750 for 105 POs was higher than expected. Why?
Expected cost = $20/PO * 105 POs + $600 = $2700
January’s cost of $2500 for 100 POs was lower than expected. Why?
Expected cost = $20/PO * 100 POs + $600 = $2600
What did we do differently? What can we learn?
For comparison and learning
April’s cost of $2750 for 105 POs was higher than expected. Why?
Expected cost = $20/PO * 105 POs + $600 = $2700
January’s cost of $2500 for 100 POs was lower than expected. Why?
Expected cost = $20/PO * 100 POs + $600 = $2600
What did we do differently? What can we learn?
Show Slide #19: Using the Cost Expression (Cont.)
Demonstration problem on how to calculate Fixed and Variable Cost Components from Mixed Cost Data (Cont.)
For comparison and learning:
April’s cost of $2750 for 105 POs was higher than expected. Why?
January’s cost of $2500 for 100 POs was lower than expected. Why?
The variable cost and fixed cost calculated using the high-low method only represents an average between the two levels of output. It may be useful to understand why there are differences in the months when the actual cost differs from the average.
1st Mouse Click View:
April’s cost of $2750 for 105 POs was higher than expected.
Why?
Expected cost = $20/PO * 105 POs + $600 = $2700
Using the cost expression developed with the high-low method, our cost is expected to be $2700 for 105 POs. In April it was different. If the difference is significant, we should attempt to understand why.
2nd Mouse Click View:
January’s cost of $2500 for 100 POs was lower than expected.
Expected cost = $20/PO * 100 POs + $600 = $2600
Using the cost expression, we would have expected the cost for 100 POs to be $ It would be useful to understand what caused the difference.
3rd Mouse Click View:
What did we do differently? What can we learn?
Were we somehow more efficient in January? Why? Or, was there a difference in the type of purchase orders processed in January? Were they simpler? Was more documentation provided by the requisitioning organization? Can we incorporate this efficiency into our regular operations?
Were we less efficient in April? Or was there a difference in the type of output? Was it more complex? Was the information provided by the requisitioning organization incomplete? Can we incorporate this knowledge into our operations?

20. LSA #2 Check on Learning
Q1. What might cause a difference between the expected cost using High-Low and the actual cost? A1. High-Low is just an average, assuming the relationship between the highest output and the lowest are representative of the whole. NOTE: This may not be the case. Sometimes the differences are due to actual cost overruns or savings from efficiencies.
Show Slide #20: LSA #2 Check on Learning
Facilitator's Note: Ask check on learning question, facilitate discussion on answers given.
Facilitator's Note: This is an animated slide, click on mouse or space bar for transition two part answer.
Q1. What might cause a difference between the expected cost using High-Low and the actual cost?
A2. High-Low is just an average, assuming the relationship between the highest output and the lowest are representative of the whole.
A2. Continued: This may not be the case. Sometimes the differences are due to actual cost overruns or savings from efficiencies.

21. LSA #2 Summary
During this lesson, we studied and talked about graphs for calculating fixed and variable cost components utilizing multiple linear relationships, calculating unit variables and fixed cost and cost expressions. Concluding with a PE for calculating the answers to the variable cost per mile, fixed cost, and develop of cost for its scenario.
Show Slide #21: LSA #2 Summary
Facilitator’s Note: Announce to the learners; during this lesson, we studied and talked about graphs for calculating fixed and variable cost components utilizing multiple linear relationships, calculating unit variables and fixed cost and cost expressions. Concluding with a PE for calculating the answers to the variable cost per mile, fixed cost, and develop of cost for its scenario.

22. Enter and Filter Data to identify if relationship is reasonably linear
Show Slide #22: 6.4 High Low Method Worksheet
Facilitator’s Note: Before the commencement of the PE, go over with learners the area’s certain key points displayed on the screen. Ask if there are any questions pertaining the worksheet and its purpose. Answer or clear up any uncertainties' the learners may have.
The spreadsheet calculates the Variable and Fixed portions of the cost

23. Practical Exercise Show Slide #23: Practical Exercise / Review
Practical Exercise / Review: 6.4 Practical Exercise Determine the Fixed and Variable Components
Method of Instruction: Practical Exercise
Facilitator's to Learner Ratio: 2:25
Time of Instruction: 00 hrs. / 45 min.
Media: Handouts
Facilitator’s Note: This is a run self-study exercise. You will use the handouts to complete your practical exercises in this segment. You will enter data to complete PE Determine the Fixed and Variable Components.
Special Instructions: Ensure Learners have access to PE Det the Fixed and Variable Comp and all related material to complete the self-study practical exercise.
Objectives: With at least 80% accuracy (70% for international Learners): Learners as individuals will answer the questions in the PE Det the Fixed and Variable Comp, using the High Low Method handout for discussion and its answers.
Facilitator’s Material: Each primary Facilitator's should possess a lesson plan, slide deck, course handouts, practical exercise with answer key, summary worksheet containing FM 1-06 (Financial Management Operations), excel template and lesson created notes.
Learner’s Material: Learners should possess course handouts, self-study practical exercise titled PE Self Study Communicate the Impact of Poor Cost Info, summary worksheet containing FM 1-06 (Financial Management Operations), excel template 6.4 High Low Method Final with access to Bb, and standard classroom supplies. 
Materials Needed:
6.4 High Low Method Excel worksheet
Practical Exercise titled: PE Det the Fixed and Variable Comp
*Pen Or Pencil
*Blank Paper
Note: (* Learner responsibility)
Procedures/Instructions:
All situations have one correct answer.
You will complete this PE immediately following the class on Determine the Fixed and Variable Components of a Mixed Cost Using the High-Low Method.
You will have 20 minutes for completion of this practical exercise, and 25 minutes for a review.
Be prepared to go over the entries and individual solutions for each question.
General Information: Follow the steps in the learner’s version of the worksheet, complete the PE by calculating and filtering the numbers to effectively give you the mileage data for the fleet and their fixed and variable cost to determine variable cost per unit. Concluding with the fixed cost. Encourage the learners to do this as individuals, and that they will have time to complete this practical exercise, followed by a review at the completion.
Instructional Lead-in: Given the particular situations in the PE, you will need to calculate the answers to the variable cost per mile, fixed cost, and develop the cost expression for CTA in the 1st portion of the PE and plot the usage and calculate fixed and variable cost component in the 2nd half of the PE.
Feedback: AAR will be conducted after the PE, along with a Learner end of course critique will be conducted at the end of the course.
Facilitator’s Note: If you experience difficulties, ask the Facilitator‘s or assistant Facilitator's for immediate assistance or help.
Requirements:
Learners conduct their own work.
Enter relevant report data to answer questions in the PE by utilizing the excel worksheet.
Practical Exercise Det the Fixed and Variable Comp
6.4 High Low Method worksheet
HO Det the Fixed and Variable Comp
Practical Exercise AJEPC103.1
Practical Exercise AJEPC103.2
Evaluation: To obtain a "Go" in this PE, you must:
1. Correctly as a individual answer and fill out the answers in the PE utilizing the excel worksheet.
2. Calculate and compute the answers to the situation. 3. Be prepare to present the your answers during the review
Facilitator’s Note: This begins the self-study practical exercise. Learners are on their own at this point.
Commence Practical Exercise:
Practical Exercise Solution/Answer Key: 6.4 Determine the Fixed and Variable Components of
a Mixed Cost Using the High-Low Method
Solution AJEPC103.1
Step 1: Calculate variable cost per mile
Cost at high output level – cost at low output level
Units at high output level – units at low output level Or
$32,000 – $15,000
25,000 miles –10,000 miles
= $17,000/15,000 miles = $1.13/mile
Step 2: Calculate fixed cost
Total cost at high output level – (VC $/unit * # Units at high output level)
$32,000 – ($1.13/mile * 25,000 miles ) = fixed cost
$32, ,250= $3,750
Step 3: Develop the expression for total cost. Now that we have calculated variable cost per unit and fixed cost, it is a simple matter to express total cost:
Total cost = $1.13/mile * # miles + $3,750
Solution AJEPC103.2
The unfiltered data is shown below. Notice that the graph doesn’t make much sense.
After filtering the data from high to low (shown above) the semi-variable pattern is apparent. It is approximately linear, so we can use the spreadsheet to calculate the fixed and variable components: Variable cost is equal to $.40 per unit
Fixed cost is equal to $3,400

24. TLO Summary
Action: Determine the Fixed and Variable Components of a Mixed Cost Using the High-Low Method
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for International Learners):
Identify High-Low Method
Calculate Fixed and Variable Cost Components from Mixed Cost Data
Show Slide # 24: TLO Summary
Facilitator’s Note: Read TLO
Action: Determine the Fixed and Variable Components of a Mixed Cost Using the High-Low Method
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for International Learners):
Identify High-Low Method
Calculate Fixed and Variable Cost Components from Mixed Cost Data
“Or”
Facilitator's at this time, have one learner from each group to explain the most important take away to them from this lesson. Facilitate a discussion on each answer.