What does the high-low method in cost estimation utilize?

The high-low method in cost estimation is a straightforward approach used to determine the variable and fixed components of a cost by analyzing activity levels. This method specifically focuses on the highest and lowest levels of activity within a given period. By identifying these two extremes, the high-low method calculates the variable cost per unit based on the difference in total costs at these activity levels.

To determine the variable cost, the difference in total costs is divided by the difference in activity levels between the highest and lowest points. Once the variable cost per unit is established, it can be used to estimate total costs at other activity levels. The fixed cost is then derived by subtracting the total variable cost from total costs at either the highest or lowest activity level.

This method is favored for its simplicity and ease of computation, especially in environments where detailed data on all activity levels may not be available.