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 whole prices on the highest and lowest ranges of exercise inside a related vary, it estimates the variable value per unit and the whole mounted prices. For instance, if an organization incurs $10,000 in whole prices at its lowest exercise degree of 1,000 models and $15,000 in whole prices at its highest exercise degree of two,000 models, the variable value per unit is calculated as ($15,000 – $10,000) / (2,000 – 1,000) = $5. The mounted value part can then be derived by subtracting the whole variable value (variable value per unit multiplied by both the excessive or low exercise degree) from the whole value at that exercise degree.
This strategy supplies a simple option to perceive value habits 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 choices. 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 fundamental understanding of their value construction with out requiring complicated calculations.
