High/Low method

Technique that utilises the highest/lowest observations from a set of data to determine fixed and variable cost element.

Change in cost at different output/activity levels will be a variable cost, as fixed costs do not change with output/activity.

Change in cost per unit of output/activity determined as follows:

Variable cost = change in cost / change in output,activity.

Fixed and variable costs may also be determined using simultaneous equations:

y = a + b(x)

where