Page 209 - Microsoft Word - 00 Prelims.docx

Quantitative analysis

High-low analysis

The high-low method of analysing a semi-variable cost into its fixed
and variable elements based on an analysis of historical information
about costs at different activity levels.

The fixed and variable costs can then be used to forecast the total
cost at any level of activity.

1.1 Steps

1 Select the highest and lowest activity levels, and their costs

Find the variable cost/unit
2

Variable cost/unit = Cost at high level of activity – Cost at low level activity
High level activity – Low level activity

Find the fixed cost, using either the high or low activity level
3
Fixed cost = Total cost at activity level – Total variable cost

4 Use the variable and fixed cost to forecast the total cost for a
specified level of activity

203