5 2016-03-28 Febmat.com

# Methods used to split semi-variable costs into fixed and variable components

## Graphical method

## Regression and correlation analysis

## High-low method

Last updated: 28.03.2016

**Past data concerning production volume (x-axis) and their corresponding level of costs (y-axis) are plotted onto the chart. Cost function will be visible after linking these points. **

If the points are fragmented, the costs and volume of production are **not correlated**.

However, if we get a line or a shape, through which a line can be drawn, there is a **correlation**. If we extend the cost line, we can derive fixed costs from the point, where the costs line intersects y-axis.

**Regression and correlation analysis** is accurate and is suitable for nonlinear functions as well.

**High-low method** is a simplified graphical method, because it is not based on a series of data, but only on data of two periods - ideally those with the lowest and the highest volume of production. However, it should be a production volume achieved under normal circumstances.

*Calculation is simple*

*Unit variable costs*

(costs at highest production volume - costs at lowest production volume) / (volume at the highest production level - volume at the lowest production level)

*Fixed costs*

costs for the highest volume of production - (volume at the highest production level x unit variable costs)

*Scheme*