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In: Accounting

What is the high-low method? Why would an organization use this method? What are the benefits...

What is the high-low method? Why would an organization use this method? What are the benefits and pitfalls? Justify your answers

Proverbs 15:22 states: “Without deliberation plans came to nothing, where counselors are many, plans succeed.” How does this tie back to costing standards?

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Expert Solution

The high low method is one the methods used by companies in cost accounting. This helps the company to identify or get a split between fixed and variable cost. It is done in such a way that the lowest level of activity and also the highest levl of activity is taken and then from these two, fixed cost is determined and also the variable cost per unit is determned.

The main reason organisation's would use this method is to get an understanding of the fixed and variable cost and this would help them in planning gor the future and also to take some crucial decisions.

An advantage of using the high low method is that it is very simply to do and doesnt require any high level information or anything of that sort. It can be carried out using the basic data that we have available, that is our daily expenses are more than enough for using the high low method.

A possible disadvantage could be that the high low method only gives an approximate and not the exact figure. So in case a company is looking for the exact figure to take their decision, then it could be a problem because high low method will not be able to give the answer to the dollar.

Hope this answers the question. If you liked the answer please give an up-vote. It would be highly encouraging for me. Thank You.

ekkarill92 answered 1 year ago
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