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Where and when do we go for a high low approach when it comes to budgeting?
I am a bit confused having looked at a question where they have solved a need to find out labour cost for the actual production by using the high low approach.
Would be very grateful if someone helped me out here
The high-low approach is “commonly” used in budgeting to estimate fixed and variable costs.
It is particularly useful when there is a need to determine the variable component of a cost, such as labour cost for actual production.
The high-low method involves selecting the periods with the highest and lowest activity levels, determining the corresponding costs for those periods, and using this information to calculate the fixed and variable cost components
By analysing the cost data at different activity levels, the high-low method helps in understanding the relationship between costs and production levels, allowing for more accurate budgeting and cost estimation.
Thank you so much for your reply, I was trying to figure out an answer to a question and was thinking of so many possible outcomes as to why it was worked out in the way it was. I wasn’t aware of labour being a semi variable cost or having elements of fixed costs until I looked it up online. The answer you have provided is very clear and has cleared the doubt I had.
Very much appreciated
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