Because semi-variable costs contain both fixed and variable elements, managers cannot use them for forecasting without separating the two pieces. The High-Low Method is a straightforward mathematical technique that separates these components by analyzing the costs at the highest and lowest levels of activity.

Variable Cost per Unit (b) = (Cost at Highest Activity − Cost at Lowest Activity) ÷ (Highest Activity Level − Lowest Activity Level)

Step 3: Calculate the total fixed cost by substituting the variable cost per unit back into either the highest or lowest activity data point:

Fixed Cost (a) = Total Cost − (Variable Cost per Unit × Activity Level)

Once you calculate these values, you can express the cost structure as a linear equation (Y = a + bX) to forecast total costs (Y) for any future activity level (X).