Management Accounting Methods for Segregating

Question: Describe about the Management Accounting for Methods for Segregating. Answer: Given below is the scatter plot On performing extrapolation, it is seen that the line is touched on y axis at 250.00. the calculation of slopes can be done by the points (40, 600) and (50, 702). Slope = (702- 600)/ (50-40) = 10.20. The equation of the line is given by 250 + 10.2x 50 to 120 clients is the relevant range of the clients. There are 7 clients within the relevant range. The fixed cost and the variable cost is calculated using the highest and lowest level of activity in the high low method. The points (30, 410) and (140, 1490) are used as the lowest data points and highest data points respectively. Therefore, the slope is (1490 410)/ (140 -30) = 9.82 and the intercept is = 1490 9.82*140 = 115.45. The equation of the line is given by Y = 115.45 + 9.82*X (Agarwal, 2016). The calculations done in excel are given in appendix a= Ymean b* Xmean b= (y- ymean)*(x- xmean)/ (x- xmean)^2 The equation obtained is given below: Y = 256.87 + 8.93*X R2 = (Y- Ymean)^2 / (X- Xmean)^2 R square measures the closeness of fit of the data and helps to give an idea about the accuracy of the prediction of data. Here, R square is 0.76 and the value of Y can be predicted by the line Y = 115.45 + 9.82*X with 76% of accuracy. The cost equation of High low method considering 80 clients give the price = 115.45 + 80*9.82 = 901.05 The least square regression methods of 80 clients provides the cost equation which gives the price as 256.87 + 80*8.93 = 971.50 The least squared method is preferred over the high low method as the fixed cost and variable cost in high low method is calculated using only two data points that are extreme values. The middle values of the data set do not affect these values and it increases the chances of errors though it is easy to calculate. The methods of least squares use all the data points and there is less chances of errors (Averkamp, 2003). The best fit line of the data measures the visually fitted semi variable line. Since no mathematical formula is used, there are high chances of errors and the values are calculated by human interpretations. The line is better visually fitted in case of high low methods. The calculation is easy in this method as only the extreme points are needed in this method. It is unaffected by the middle values and have high chances of errors. The methods of least square have the least chances of errors as it uses all the points to fit the data. A single error would cause deviation from the actual result. However, it is time consuming and requires huge calculations. The least squared methods should give Peter more confident over other methods (Agarwal, 2016). References Agarwal, R 2016, Methods for Segregating Semi-Variable Costs into Fixed and Variable viewed on 23 August, 2016 from https://www.yourarticlelibrary.com/accounting/costing/methods-for-segregating-semi-variable-costs-into-fixed-and-variable/52669/ Averkamp, H 2003, What is the high-low method. viewed on 23 August, 2016 from https://www.accountingcoach.com/blog/what-is-the-high-low-method