HighLow 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
HighLow 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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 Spring '09
 Stangota
 Managerial Accounting, $12, $23,000, $38,000, $36,375 2 1,250 38,000 3 1,750 41,750 4 1,600 42,360 5 2,350 55,080 6 2,100 48,100 7 3,000 59,000 8 2,750 56,800

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