Page 80 - F2 - MA Integrated Workbook STUDENT 2018-19
P. 80
Chapter 4
High-Low method
We need to be able to split semi-variable cost into their fixed and variable
components.
Note: Total cost = Total fixed cost + Total variable cost
Where: Total variable cost = Variable cost per unit × Activity level (units)
5.1 Using the high-low method
This method picks out the highest and lowest activity levels from the available data
and investigates the change in cost which has occurred between them.
From this, the variable cost per unit and the fixed cost element can be calculated.
Example 5
Consider the following data for a semi-variable cost:
Activity level Cost incurred
Month (units) ($)
Quarter 1 10,000 38,300
Quarter 2 12,000 42,700
Quarter 3 9,000 35,700
Quarter 4 14,000 47,200
Calculate the variable cost per unit by selecting the highest and lowest activity
levels.
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