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    Using the High-Low Method

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    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

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    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.