1. What is the High Low Method?

The High Low Method is a technique used in cost accounting to separate fixed and variable costs by comparing the highest and lowest activity levels and their associated costs.

2. How Does the Calculator Work?

The calculator uses the High Low Method formulas:

Where:

• \( VC \) — Variable Cost per unit (£)
• \( FC \) — Fixed Cost (£)
• \( high\_cost \) — Cost at highest activity level (£)
• \( low\_cost \) — Cost at lowest activity level (£)
• \( high\_units \) — Highest activity level (units)
• \( low\_units \) — Lowest activity level (units)

Explanation: The method calculates the variable cost per unit first, then uses this to determine the fixed cost component.

3. Importance of Cost Separation

Details: Separating fixed and variable costs is essential for cost-volume-profit analysis, budgeting, and decision-making in business.

4. Using the Calculator

Tips: Enter the total costs and activity levels at both the highest and lowest points. All values must be positive numbers, and the activity levels must be different.

5. Frequently Asked Questions (FAQ)

Q1: When should I use the High Low Method?
A: It's most useful when you need a quick estimate of fixed and variable costs and have limited data points.

Q2: What are the limitations of this method?
A: It only uses two data points and assumes linearity, which may not reflect more complex cost behaviors.

Q3: How accurate is this method?
A: It provides a rough estimate. Regression analysis is more accurate but requires more data points.

Q4: Can I use this for any type of cost?
A: Best for costs that have clear fixed and variable components (mixed costs).

Q5: What if my highest cost isn't at the highest activity level?
A: You should use the cost at the highest activity level, not necessarily the highest cost.