In the high-low method, the change in cost between the highest and lowest activity levels is used to estimate the variable cost per unit.

• A. True
• B. False
• C. It uses only the highest data point
• D. It uses the average of high and low totals

Answer: (A)

The high-low method estimates the variable cost per unit from the change in cost as activity changes. It uses the total cost at the highest activity level and at the lowest activity level and asks how much the cost increases when activity rises. The variable cost per unit is found by dividing that change in cost by the change in activity. Since total cost = fixed cost + (variable cost per unit × activity), the difference between the high and low totals isolates the variable portion, giving the slope of the cost–volume relationship. It’s not based on a single data point or an average of totals; it relies on the two extreme points to determine the variable cost per unit.