High Low Method Flashcards
1
Q
What is the high low method
A
- Budgets rely on forecasts, one such forecasting method is the high-low method
- This simple method of forecasting uses past data to break costs into variableand fixedcost behaviours
*Can produce unreliable results if high or low results were significant outliers
Step 1: Subtract the highest activity level & cost from the lowest
Step 2: Divide the increase in cost by the increase in activity to get the variable cost per unit
Step 3: Subtract the variable cost from the total cost of an activity level to get the fixed cost
