HIGH-LOW METHOD (Chapter 6 Appendix) EXAMPLE: Kohlson Company has incurred the following shipping costs over the past eight months: Units Shipping Sold Cost January..... 6,000 $66,000 February... 5,000 $65,000 March....... 7,000 $70,000 April ......... 9,000 $80,000 May.......... 8,000 $76,000 June 10,000 $85,000 July 12,000 $100,000 August 11,000 $87,000 With the high-low method, only the periods in which the lowest activity and the highest activity occurred are used to estimate the variable and fixed components of the mixed cost. Units Shipping Sold Cost High activity level, July....... Low activity level, February Change......... 12,000 $100,000 5,000 65,000 7,000 $35,000 Change in cost $35,000 Variable cost= =$5 per unit Change in activity 7,000 units Fixed cost = Total cost - Variable cost element = $100,000 (12,000 units $5 per unit) = $40,000 The cost formula for shipping cost is: Y = $40,000 + $5X