Businesses use the high-low method of accounting when they want to accurately calculate the variable and fixed costs for a certain amount of sales. If a business finds that certain sales levels are not profitable based on the high-low method, it may choose to raise prices when sales are estimated to hit those levels.
To use the high-low method of estimating costs, a business must create a list that contains sales and cost information spanning a period of time. A business should write down the sales and costs from each month during the previous fiscal year. Based on those figures, a business determines what its lowest and highest levels of activity were for the year. To calculate the estimated variable cost per unit, a business subtracts the lowest sales cost from the highest sales cost, then divides that amount by the difference between the highest sales units and lowest sales units.
Car Sales Example
Car dealerships have both fixed and variable costs that make up their total costs each month. Fixed costs include known expenses like building lease payments and insurance, while variable costs include salaries based on commission and any other expense where the cost cannot be predicted. To use the high-low method, a dealership uses the formula from the previous section. If the highest total cost per month for the previous year was $400,000 and the lowest total cost was $200,000, the change in cost at the top of the equation is $200,000. The dealership then uses the amount of cars sold during the $400,000 month (for this example, we'll say 100 cars) then subtracts the amount of cars sold during the $200,000 month (we'll say 40 cars) and gets a difference of 60 cars. The dealership then divides the $200,000 change in cost by the 60-car change in sales and obtains an estimated variable cost of $3,333.33 per car sold. So, the dealership can estimate the variable costs for the $400,000 month to be $333,333 (based on 100 cars multiplied by the $3,333.33 variable cost per unit) and the fixed costs to be $66,667.
A computer company uses the high-low method of estimating costs using the same method as the automobile example from Section 2. If, when analyzing all of the months from the previous fiscal year, the highest total cost was $1 million in February for 2,000 computers sold and the lowest total cost was $700,000 from 1,000 computers sold, the computer company would divide the $300,000 change in cost by the 1,000 unit change to obtain a $300 variable cost per unit.
If a company knows its approximate fixed and variable cost per unit, it can determine whether it is losing or making money on certain products. For example, if a particular computer line continuously fails to make a profit each month, a computer company may choose to stop producing the product completely. High-low accounting for cost enables managers to make informed decisions about their business and growth.
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The passage provides an explanation of the high-low method of accounting, including examples for a car dealership and a computer company, and how it can be used to make business decisions. It includes calculations for variable and fixed costs in the examples.
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Given a text passage, determine:
    1. If it contains a mathematical question (including word problems or calculations)
    2. If an answer to that mathematical question is provided in the text

First, describe the content structure you found in 1-2 sentences.

Then provide your analysis in the following format:
TYPE: <one of the following values>
- NO_QUESTION
- SINGLE_QUESTION
- SINGLE_QUESTION_WITH_ANSWER
- MULTIPLE_QUESTIONS
- MULTIPLE_QUESTIONS_WITH_ANSWERS
system
Businesses use the high-low method of accounting when they want to accurately calculate the variable and fixed costs for a certain amount of sales. If a business finds that certain sales levels are not profitable based on the high-low method, it may choose to raise prices when sales are estimated to hit those levels.
To use the high-low method of estimating costs, a business must create a list that contains sales and cost information spanning a period of time. A business should write down the sales and costs from each month during the previous fiscal year. Based on those figures, a business determines what its lowest and highest levels of activity were for the year. To calculate the estimated variable cost per unit, a business subtracts the lowest sales cost from the highest sales cost, then divides that amount by the difference between the highest sales units and lowest sales units.
Car Sales Example
Car dealerships have both fixed and variable costs that make up their total costs each month. Fixed costs include known expenses like building lease payments and insurance, while variable costs include salaries based on commission and any other expense where the cost cannot be predicted. To use the high-low method, a dealership uses the formula from the previous section. If the highest total cost per month for the previous year was $400,000 and the lowest total cost was $200,000, the change in cost at the top of the equation is $200,000. The dealership then uses the amount of cars sold during the $400,000 month (for this example, we'll say 100 cars) then subtracts the amount of cars sold during the $200,000 month (we'll say 40 cars) and gets a difference of 60 cars. The dealership then divides the $200,000 change in cost by the 60-car change in sales and obtains an estimated variable cost of $3,333.33 per car sold. So, the dealership can estimate the variable costs for the $400,000 month to be $333,333 (based on 100 cars multiplied by the $3,333.33 variable cost per unit) and the fixed costs to be $66,667.
A computer company uses the high-low method of estimating costs using the same method as the automobile example from Section 2. If, when analyzing all of the months from the previous fiscal year, the highest total cost was $1 million in February for 2,000 computers sold and the lowest total cost was $700,000 from 1,000 computers sold, the computer company would divide the $300,000 change in cost by the 1,000 unit change to obtain a $300 variable cost per unit.
If a company knows its approximate fixed and variable cost per unit, it can determine whether it is losing or making money on certain products. For example, if a particular computer line continuously fails to make a profit each month, a computer company may choose to stop producing the product completely. High-low accounting for cost enables managers to make informed decisions about their business and growth.
- Hemera Technologies/Photos.com/Getty Images
user
The passage provides an explanation of the high-low method of accounting, including examples for a car dealership and a computer company, and how it can be used to make business decisions. It includes calculations for variable and fixed costs in the examples.

TYPE: MULTIPLE_QUESTIONS_WITH_ANSWERS