high–low method

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A method used to predict cost behaviour in which the observations of the cost levels for various activity levels are plotted on a graph; a straight line is drawn through the plots recording costs at the highest and lowest activity levels. This line then purports to represent the cost behaviour characteristics of that cost item. The method suffers from the major drawback that the line drawn has no particular mathematical characteristics, making the technique weak at cost prediction.

Subjects: Accounting.

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