When using the high-low method, should you base the high and low observations on the dependent variable or on the cost driver?

10-9 In a cost function, the dependent variable and the cost driver are the lines of causality. In the high-low strategy, picking the highest and lowest observations of the cost driver is therefore suitable.

When should the high low approach not be used?

If the highest and lowest activity levels reflect the company’s general cost pattern, the high-low technique can be reasonably accurate. However, the high low technique will give false results if the two extreme activity levels are systematically different.

How does the high-low approach work?

Find the activity with the highest cost and highest operational unit.

Add the highest activity to the variable cost per unit.

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