What method is commonly used to estimate fixed and variable costs based on historical data?

The high-low method is commonly used to estimate fixed and variable costs based on historical data because it utilizes the highest and lowest levels of activity, such as production or sales, to derive a cost model. This method involves identifying the highest and lowest levels of activity and their corresponding total costs, allowing for the calculation of variable costs per unit and the determination of total fixed costs.

To apply the high-low method, you compute the variable cost per unit by subtracting the total cost at the lowest activity level from the total cost at the highest level and then dividing that result by the difference in activity levels. Once the variable cost is established, you can subtract the total variable costs from either the total cost at the highest or lowest level to find the total fixed costs. This approach provides a straightforward way to estimate costs without requiring complex calculations or intensive data analysis, making it particularly accessible for managers who need quick insights into cost behavior.

The regression analysis method, while also useful for estimating costs, involves a more complex statistical approach that can be more difficult to implement without software, making it less practical for quick estimates based solely on historical data. The activity-based costing method focuses on assigning costs based on the activities that drive costs rather than simply separating fixed and variable costs. Finally