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Using the High-Low Method

Hot'lanta, Inc, which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year.

Month Utilities Machine hours
January $8,700 800
February 8,360 720
March 8,950 810
April 9,360 920
May 9,625 950
June 9,150 900

Solution Preview

We can determine the fixed and variable elements of the utility cost using the high-low method.

1. Determine the variable cost per machine-hour:

Month Utilities Machine hours
May $9,625 950 This is the highest number of machine hours for the ...

Solution Summary

This solution illustrates how to find fixed and variable costs using the high-low method.