The high-low methodology is a price accounting approach used to separate fastened and variable prices given a restricted quantity of information. 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 fastened prices. For instance, if an organization incurs $10,000 in whole prices at its lowest exercise stage of 1,000 models and $15,000 in whole prices at its highest exercise stage of two,000 models, the variable value per unit is calculated as ($15,000 – $10,000) / (2,000 – 1,000) = $5. The fastened value element can then be derived by subtracting the overall variable value (variable value per unit multiplied by both the excessive or low exercise stage) from the overall value at that exercise stage.
This strategy gives a simple solution to perceive value conduct and develop value estimations, particularly when detailed value info is unavailable or impractical to assemble. Whereas not as correct as regression evaluation, its simplicity permits for fast value projections and budgeting selections. Its growth predates subtle computerized evaluation and stems from a necessity for accessible value estimation instruments. Traditionally, companies have utilized this methodology to realize a fundamental understanding of their value construction with out requiring complicated calculations.
