What this calculator does
Many costs are neither purely fixed nor purely variable. The high-low method separates them using only two observations: the periods of highest and lowest activity, which is crude but requires almost no data.
The arithmetic is simply the slope between two points. A cost of $80,000 at 12,000 units and $50,000 at 6,000 units implies $5.00 per unit variable and $20,000 fixed, which reproduces both observations exactly.
The formula
The difference in cost divided by the difference in units gives the variable cost per unit. Subtracting the variable component from either observation leaves the fixed cost.
| Term | Meaning |
|---|---|
| Mixed cost | A cost with both a fixed component and a component that varies with activity. |
| Variable cost per unit | The slope between the two observations. |
| Fixed cost | The intercept, being the cost that would remain at zero activity. |
The inputs explained
| Field | What to enter |
|---|---|
| Cost at highest activity level ($) | Total cost at the highest activity level observed. |
| Units at highest activity level | Units produced at that highest level. |
| Cost at lowest activity level ($) | Total cost at the lowest activity level observed. |
| Units at lowest activity level | Units produced at that lowest level. |
When to use it
Building a quick cost model
Two data points are enough to estimate a cost equation for budgeting.
Preparing a breakeven analysis
Breakeven requires the fixed and variable split, which this provides.
Sanity-checking an overhead allocation
A rough split highlights whether an allocation rate looks plausible.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does the high observation change the split?
Three different high-activity costs against 12,000 units.
| Cost at 12,000 units | Variable cost per unit | Fixed cost |
|---|---|---|
| $60k | $1.67 | $40,000.00 |
| $80k | $5.00 | $20,000.00 |
| $110k | $10.00 | −$10,000.00 |
Questions
Why can the fixed cost come out negative?
Because the method fits a straight line through two points regardless of whether a straight line makes sense. A negative intercept means the relationship is not linear over that range, and the result should be discarded rather than used.
What is wrong with using only two points?
They may both be unrepresentative. An unusually busy month might include overtime premiums, and a quiet one might include a shutdown. Using the extremes deliberately selects the two most likely outliers.
What is the better alternative?
Least squares regression across all observations, which uses every data point and is far more robust. The high-low method survives mainly because it can be done by hand and appears in introductory courses.
Does the relevant range matter?
Very much. A cost structure that is linear between 6,000 and 12,000 units may change entirely outside that band, as new equipment or extra shifts become necessary. Estimates should not be extrapolated beyond the observed range.
For the breakeven point this feeds, see the break-even calculator. For how fixed costs amplify profit swings, see the degree of operating leverage calculator.