High Low Method Calculator
Calculate variable cost per unit, fixed costs, and cost functions using the high-low method
Cost Data Input
High Activity Level
Low Activity Level
High-Low Method Results
Example: Payroll Budget Calculation
Company Scenario
Events Management Company: Preparing payroll budget
Historical Data (with 5% pay raise applied):
• Q1: 10,000 hours at $315,000 (adjusted from $300,000)
• Q4: 18,000 hours at $540,000
New Quarter Projection: 20,000 hours
High-Low Method Calculation
Step 1: Variable cost per hour = ($540,000 - $315,000) ÷ (18,000 - 10,000) = $28.13
Step 2: Fixed cost = $540,000 - ($28.13 × 18,000) = $33,750
Step 3: Total payroll budget = $33,750 + ($28.13 × 20,000) = $596,350
Cost Function: Payroll = $33,750 + $28.13 × hours
High-Low Method Steps
Identify Activity Levels
Find highest and lowest activity points
Calculate Variable Cost
Use cost difference ÷ unit difference
Find Fixed Cost
Total cost - (Variable × Units)
Create Cost Function
Fixed Cost + Variable × Units
Method Analysis
Advantages
- • Quick and easy to calculate
- • Requires minimal data points
- • No sophisticated tools needed
- • Good for preliminary estimates
Disadvantages
- • Oversimplifies cost relationships
- • Uses only two data points
- • Ignores other cost factors
- • May not reflect inflation
Cost Analysis Tips
Use representative high and low activity levels
Ensure data points are from normal operations
Verify results with other costing methods
Consider seasonal and cyclical factors
Update calculations regularly
Understanding the High-Low Method
What is the High-Low Method?
The high-low method is a cost accounting technique used to separate mixed costs into their fixed and variable components. It compares the total costs at the highest and lowest levels of business activity to estimate cost behavior patterns.
When to Use This Method
- •Budget preparation and planning
- •Cost estimation for different activity levels
- •Break-even analysis preparation
- •Quick cost behavior assessment
Key Formulas
Variable Cost per Unit =
(High Cost - Low Cost) ÷ (High Units - Low Units)
Fixed Cost =
High Cost - (Variable Cost × High Units)
Total Cost =
Fixed Cost + (Variable Cost × Units)
Cost Behavior Assumptions
Fixed Costs
- • Remain constant regardless of activity level
- • Examples: Rent, insurance, salaries
- • Must be the same at high and low points
- • Spread over more units as volume increases
Variable Costs
- • Change proportionally with activity level
- • Examples: Materials, labor, utilities
- • Constant per-unit rate assumed
- • Total varies with production volume