AC-3 is a high quality audio compression format widely used in feature films and, more recently, on Digital Versatile Disks (DVD). For consumer applications the algorithm is usually coded into the firmware of a DSP Processor, which due to cost considerations may be capable of only fixed point arithmetic. It is generally assumed that 16-bit processing is incapable of delivering the high fidelity audio, expected from the AC-3 technology. Double precision computation can be utilized on such processors to provide the high quality; but the computational burden of such implementation will be beyond the capacity of the processor to enable real-time operation. Through extensive simulation study of a high quality AC-3 encoder implementation, a multi-precision technique for each processing block is presented whereby the quality of the encoder on a 16-bit processor matches the single precision 24-bit implementation very closely without excessive additional computational complexity.