High-Low Method

For costs that are neither purely variable nor purely fixed, we must identify and separate those variable and fixed components to be able to incorporate them into our cost-volume-profit analysis. The high-low method is a simple way to accomplish that objective.

We will continue with the example of Bob’s Appliances. Bob delivers the new appliances he sells to customers. Some of the costs associated with this delivery service are fixed, such as insurance, emissions inspections for his trucks, and depreciation. Other costs, such as gasoline and tires, are variable, based on the number of deliveries he makes and the miles he travels per year. In the most current year, Bob made 180 deliveries and incurred a total delivery ...

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