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

y = total cost

a = fixed cost

b = variable cost

x = no. of units produced.

 

 

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