Quick Answer: How Do You Use The High Low Method?

What is the High Low method formula?

The formula for developing a cost model using the high-low method is as follows: Once the variable cost per unit is determined: Fixed cost = Highest activity cost – (Variable cost per unit x Highest activity units) or.

Fixed cost = Lowest activity cost – (Variable cost per unit x Lowest activity units).

What is the High Low method?

In cost accounting, the high-low method is a way of attempting to separate out fixed and variable costs given a limited amount of data. The high-low method involves taking the highest level of activity and the lowest level of activity and comparing the total costs at each level.

What is high and low point method?

High-low point method is a technique used to divide a mixed cost into its variable and fixed components. … Under high-low point method, an estimated variable cost rate is calculated first using the highest and lowest activity levels and mixed costs associated with them.

How do you find variable cost using the high low method?

High Low MethodVariable Cost Per Unit = (Highest Activity Cost – Lowest Activity Cost) / (Highest Activity Units – Lowest Activity Units) … Fixed Cost = Highest Activity Cost – (Variable Cost Per Units * Highest Activity Units) … Fixed Cost = Lowest Activity Cost – (Variable Cost Per Units * Lowest Activity Units)

What are the advantages and disadvantages of high low method?

What are the advantages of High Low method?Advantages of high low methodAccuracyThe high low method can provide accuracy if the activity and cost are perfectly linear.1 more row

How do you separate mixed cost using the high low method?

Just follow three steps:Based on a table of total costs and activity levels, determine the high and low activity levels. Look at the production level and total costs to identify the high and low activity levels. … Use the high and low activity levels to compute the variable cost. per unit. … Figure out the total fixed cost.