HIGH - LOW method

1. We collect data for say 12 months - 1 year

2. Data of activities - volume

3. Data of costs - Total mixed costs

4. Take the highest volume - 2,600

5. Take the lowest volume -1,200

6. Take the correspondent costs to the highest volume - 10,100

7. Take the corresponding costs to the lowest volume - 6,750

8. Find the margin costs per unit :

Costs at highest point - Costs at lowest point

MC per unit= _____________________________________

Highest volume - Lowest volume

10,100 - 6,750

= ________________

2,600 - 1,200

3, 350

= _______________

1,400

Variable costs=2.39 per unit

Total mixed costs=VC ( unit )+ Fixed costs

10,100=2.39 ( 2,600 )+ FC

Fixed costs=10,100 - 6,214

=3,886

Total mixed costs=2.39 X+3,886

MonthPizzasOverheads

1 2,100 8,400

2 2,600 10,100

3 2,300 8,800

4 2,450 9,250

5 2,100 8,050

6 2,175 8,200

7 1,450 6,950

8 1,200 6,750

9 1,350 7,250

10 1,750 7,300

11 1,550 7,250

12 2,050 7,950

1. Now use the variables cost to calculate the profit marginSales- variable costs.

2. Use the profit margin to decide on whether you can accept the special order