High-Low Method

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Dictionary Says

Definition of 'High-Low Method'


In cost accounting, a way of attempting to separate out fixed and variable costs given a limited amount of data. The high-low method involves taking the highest level of activity and the lowest level of activity and comparing the total costs at each level. If the variable cost is a fixed charge per unit and fixed costs remain the same, it is possible to determine the fixed and variable costs by solving the system of equations.
Investopedia Says

Investopedia explains 'High-Low Method'


The high-low method is not preferred because it can yield an incorrect understanding of the data if there are changes in variable or fixed cost rates over time, or if a tiered pricing system is employed. In most real-world cases it should be possible to obtain more information so the variable and fixed costs can be determined directly. Thus, the high-low method should only be used when it is not possible to obtain actual billing data.

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