1. What is the High-Low Method?

The High-Low Method is a cost accounting technique used to separate fixed and variable costs by analyzing the highest and lowest activity levels and their associated costs.

2. How Does the Calculator Work?

The calculator uses the High-Low Method formula:

Where:

• High Cost — Total cost at highest activity level
• Low Cost — Total cost at lowest activity level
• High Units — Number of units at highest activity level
• Low Units — Number of units at lowest activity level

Explanation: The method calculates the variable cost per unit by analyzing the cost difference between the highest and lowest activity levels.

3. Importance of Variable Cost Calculation

Details: Accurate variable cost calculation is crucial for cost-volume-profit analysis, budgeting, pricing decisions, and understanding cost behavior in business operations.

4. Using the Calculator

Tips: Enter high and low cost values in currency, high and low unit values as numbers. All values must be positive and high units cannot equal low units.

5. Frequently Asked Questions (FAQ)

Q1: What is the main limitation of the high-low method?
A: The method only uses two data points (highest and lowest) and may not represent the true cost behavior if these points are outliers.

Q2: How accurate is the high-low method compared to regression analysis?
A: Regression analysis is generally more accurate as it uses all available data points, while high-low method uses only two extreme points.

Q3: Can this method be used for all types of costs?
A: It works best for costs that have a clear linear relationship between cost and activity level. It may not be suitable for costs with step or curved patterns.

Q4: What if my high and low units are the same?
A: The calculation requires different activity levels. If high and low units are identical, the denominator becomes zero and the calculation is not possible.

Q5: How do I calculate fixed costs using this method?
A: Once variable cost per unit is calculated, fixed cost can be determined by subtracting total variable cost from total cost at either high or low activity level.