High-Low Method

You run the accounting department at a company that produces multiple products. However, you're also very lazy. You don't want to push your tee times to do any serious cost analysis. However, your CEO is pushing you to do a better job calculating the fixed and variable costs for each product.

Luckily, there's the high-low method. It provides a relatively simple way to perform the calculations. To do it, you take the highest activity level and the lowest activity level for a particular set of circumstances. You then compare the total costs for both the high and the low.

Using those two data points, you can calculate the fixed and variable costs. And still reach the first tee on time.

In real life, laziness isn't the main reason for using the high-low method (or so the accountants tell us). Instead, the high-low method provides a way to separate costs in a scenario where little data is available.