By focusing on these extremes, the high-low method helps determine the variable cost per unit and the total fixed cost. This provides insight into how expenses fluctuate with production.

To calculate the cost to run an air conditioner for one hour, consider the unit’s wattage, the average cost of electricity in your state and the number of hours your unit runs daily.

Price per unit less variable cost per unit produces a surplus if the price is set correctly. In accounting terminology, this is called the “contribution margin.” It is the amount the sale of ...