Could somebody explain the High-Low method, please?
submitted by Mark Rumsfield

Bob Sledd

I'd rather not, but for you, I will.

You look at the highest and lowest activity points to figure out how costs change. You find the total costs at the highest and lowest levels of production or sales, then figure out the difference so you can estimate the variable cost per unit. After that, you can find the fixed costs by plugging back into the total cost equation.

yolanda

That was gracious of you, Bob.

It's when you compare your most expensive month and your cheapest month to see how costs behave. You look at the total costs in those months and see how much they differ. Then you can figure out how much of that difference is because of the activity level (like how many units you made). It helps you estimate which costs are fixed and which are variable.