Which of the following statements is true when referring to the high-low method of cost analysis?

A) The high-low method has no major weaknesses.
B) The high-low method is very hard to apply.
C) In essence, the high-low method draws a straight line through two data points.
D) The high-low method uses all of the available data to estimate fixed and variable costs.

Question

favanjot singh · Accepted Answer

Final Answer : C, Explanation :  The high-low method involves selecting the highest and lowest levels of activity and using them to estimate variable and fixed costs. The method essentially draws a straight line through these two points, allowing for the estimation of costs at other levels of activity. The method has some weaknesses, including the fact that it only uses two data points and may not accurately represent more complex relationships between costs and levels of activity.

Definitions

Learning Objectives

Learning Objectives

Related questions