The high-low methodology is a value accounting method used to separate mounted and variable prices given a restricted quantity of knowledge. By evaluating the overall prices on the highest and lowest ranges of exercise inside a related vary, it estimates the variable value per unit and the overall mounted prices. For instance, if an organization incurs $10,000 in whole prices at its lowest exercise degree of 1,000 items and $15,000 in whole prices at its highest exercise degree of two,000 items, the variable value per unit is calculated as ($15,000 – $10,000) / (2,000 – 1,000) = $5. The mounted value element can then be derived by subtracting the overall variable value (variable value per unit multiplied by both the excessive or low exercise degree) from the overall value at that exercise degree.
This method gives a simple strategy to perceive value conduct and develop value estimations, particularly when detailed value info is unavailable or impractical to collect. Whereas not as correct as regression evaluation, its simplicity permits for fast value projections and budgeting selections. Its improvement predates subtle computerized evaluation and stems from a necessity for accessible value estimation instruments. Traditionally, companies have utilized this methodology to achieve a primary understanding of their value construction with out requiring advanced calculations.
