# High Low Method

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

• Registered Posts: 4
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 cost
• Registered Posts: 79
edited October 2016
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-
7000U-5000U= 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.
• Registered Posts: 2
Thank you both

Emma