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Give a simple example of flexing a budget. What is the allowed cost (budget allowance) in flexible budgeting? How do you prepare a flexible budget? What is the difference between fixed, variable, and semi-variable costs in flexible budgeting? How does the flexible budget separate the volume variance from other variances? How are flexible budgets used for control reporting? What is the flexible budget variance? What is the sales-volume variance in the context of flexible budgets? What is the difference between a static budget variance and a flexible budget variance? What are the limitations of flexible budgeting?
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Budgeting & Forecasting › Flexible Budgets

What is the high-low method for splitting semi-variable costs?

Intermediate

Answer

The high-low method estimates the variable cost per unit from the highest and lowest activity levels: variable cost per unit = (cost at high - cost at low) / (units at high - units at low). Fixed cost is then total cost minus variable cost at either level. It's simple but relies on only two points, so it can be inaccurate.
VC/unit = (High cost - Low cost) / (High units - Low units).
Real-world example Using the busiest and quietest months, the analyst splits the mixed maintenance cost into fixed and variable parts.

Common follow-ups: What are the limitations of high-low? | How is fixed cost derived?

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All 34 Flexible Budgets questions