High low method is used to separate fixed from variable costs.
Example:
Suppose you have two levels of activities and costs as follows:
Activity (Machine hours) Total Cost
1,000,000 $80,000
2,000,000 $150,000
Variable cost per unit= Difference between the highest cost and the lowest cost divided by the difference in the highest level of activity and the lowest level
(150000-80000)/(2000000-1000000)=0.07
multiply the rate by the hifhest or lowest level of activity. Lets multiply it by the highest level of activity (0.07*2000000)=140000 and deduct the amount from the highest cost (150000-140000)=10000 so the fixed cost is 10000
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