Page 25 - MAC4861_2 Costing Class Slides Part 1

TEST 3 - COSTING
TEST 3 - COSTING

High-low method

• This method takes the highest and lowest activity

levels and associated costs from the available

information and calculates the change in volume

and cost which has occurred between them.

• The assumption is that the change in total costs

between the two levels is attributable to the

variable costs, because fixed costs stay the same

within a normal capacity range (0%–100%).

• Total cost = (Variable cost x Units produced) +

Fixed costs

25