High Low Method
emmalh
Registered Posts: 2
Am really struggling with this question, not sure where to start,
Any help would be appreciated
Thanks Emma
Use the high low method to predict the costs at a production level of 8,000 units
Production level
Units Total cost
£
5,000 15,500
7,000 19,500
9,000 23,500
11,000 27,500
Units Cost £
£ Variable unit cost
£ Fixed cost
£ Production cost for 8,000 units
Any help would be appreciated
Thanks Emma
Use the high low method to predict the costs at a production level of 8,000 units
Production level
Units Total cost
£
5,000 15,500
7,000 19,500
9,000 23,500
11,000 27,500
Units Cost £
£ Variable unit cost
£ Fixed cost
£ Production cost for 8,000 units
0
Comments

High 11000 units £27500
Low 5000 units £15500
= 6000 units £12000
£12000/6000 units= £2 variable unit cost
£2 x 5000 units= £10000 variable cost
£15500 total cost
£10000 variable cost
=£5500 fixed cost
8000 units x £2 =£16000 variable cost
+£5500 fixed cost
=£21500 total cost0 
I don't follow the exact higher and lower method, I use any two. Here take the first two production level cost and use the difference value between them. Below is illustration:
U= Units
£= value
Step 1
7000U5000U= 2000U
£19500£15500=£4000
i.e. 2000U =£4000
Or 1U= £2 ( this is the variable cost per unit)
Step 2
You should know total variable + total fixed= total cost.
Or total fixed = total cost total variable
Now use this variable unit cost and formula to find a fixed costs by taking Any of the production level figure. All should result in same answer.
Let's use 5000U=£15500
Fixed cost = £15500( 5000×£2)= £15500£10000 = £5500
So, £5500 is a fixed cost and will be charged to any production level.
Step 3
Now at last, let's find the cost of 8000U.
Fixed cost= £5500
Variable cost= £2×8000=£16000
Total cost= £21500.
0 
Thank you both
Emma0