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High-Low Method

# High-Low Method - High-Low method is one of the several...

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High-Low method is one of the several techniques used to split a mixed cost into its fixed and variable components. Although easy to understand, high low method is relatively unreliable. This is because it takes two extreme activity levels (i.e. labor hours, machine hours, etc.) from a set of actual data of various activity levels and their corresponding total cost figures. These figures are then used to calculate the approximate variable cost per unit ( b ) and total fixed cost ( a ) for the cost volume formula : y = a + bx High-Low Method Formulas Variable Cost per Unit Variable cost per unit ( b ) is calculated using the following formula: Variable Cost per Unit = y 2 − y 1 x 2 − x 1 Where, y 2 is the total cost at highest level of activity; y 1 is the total cost at lowest level of activity; x 2 are the number of units/labor hours etc. at highest level of activity; and x 1 are the number of units/labor hours etc. at lowest level of activity In other words, variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of units produced). Total Fixed Cost Total fixed cost (

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High-Low Method - High-Low method is one of the several...

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