High-Low Method Cost Estimator

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Finance

Separate mixed costs into fixed and variable components using historical high/low activity data. Essential for manufacturing, utilities, and operational cost forecasting.

Formula

VC/Unit = (High Cost - Low Cost) ÷ (High Units - Low Units); Fixed = High Cost - (VC × High Units)
  • Assumes linear relationship; use regression for better accuracy
  • Ignores outliers and non-linear patterns

Factory Utilities

Inputs
  • High Activity Units: 8000 units
  • High Activity Total Cost ($): 12400 $
  • Low Activity Units: 2000 units
  • Low Activity Total Cost ($): 6000 $
  • Projected Units: 5000 units

Variable = $1.07/unit; Fixed = $3,867/month; At 5,000 units = $9,202.

Frequently asked questions

When to use this method?
For 2-3 months of cost data. Use regression for more accuracy.