What is the primary purpose of using the high-low method in cost analysis?

The primary purpose of using the high-low method in cost analysis is to determine cost behavior based on activity levels. This method is valuable because it allows businesses to estimate variable and fixed costs by examining the highest and lowest levels of activity (such as production or sales volume) and their corresponding costs.

By using the data points from these extremes, the high-low method calculates the variable cost per unit and subsequently identifies total fixed costs. This understanding of cost behavior is crucial for businesses to make informed decisions regarding pricing, budgeting, and forecasting, enabling them to predict how costs will change as activity levels fluctuate.

This method is less focused on broader financial metrics such as sales trends or profit margins, which do not directly analyze the relationship between cost and production levels. Thus, it serves a specific function in cost analysis that aids in understanding operational efficiency and cost control.