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