This video provides an example of how to use the High-low Method in Managerial Accounting.
The High-low Method can be used to calculate the variable cost per unit. This is found using the following formula:
(Total Cost at the Highest Activity Level – Total Cost at the Lowest Activity Level) / (Highest Activity Level – Lowest Activity Level) = Variable Cost Per Unit
Once you know the variable cost per unit, you can find the total fixed cost using the following formula:
Fixed Cost = Total Cost – Total Variable Cost
Once you know the variable cost per unit and the fixed cost, you can predict what the total cost would be at various activity levels. You would do this using the following formula:
Total Cost (predicted) = Fixed Cost + Variable Cost Per Unit * Units