Answered: What is the chief drawback of the…

What is the chief drawback of the high-low method of cost estimation? What problem could an outlier cause if the high-low method were used?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter2: Building Blocks Of Managerial Accounting

Section: Chapter Questions

Problem 12Q: Explain how the high-low method is used for cost estimation. What, if any, are the limitations of...

See similar textbooks

Related questions

Q: Which method separating mixed cost is most accurate? Provide reasons for your answer based on the…

A: Cost under accounting can be of two types i.e. fixed cost and variable cost. The accosting records…

Q: “The inspection point is the key to the allocation of spoilage costs.” Do you agree? Explain.

A: Spoilage: Spoilage is the defective item at intermediate or final stage. The spoilage goods cannot…

Q: The advantages of standard costing exceeds its disadvantages. True or false? Explain further

A: Standard Costing The primary purpose of implementing the cost accounting system to any organisation…

Q: Why can undue emphasis on labor efficiency variances lead to excess inventories?

A: Labour Efficiency variation tests the willingness to use resources in line with standards. This…

Q: Which of the following statements related to cost estimation methods is false? The least-squares…

A: Following is the answer to the given question

Q: What effect, if any, would you expect poor-quality materials to have on direct labor variances?

A: Direct labour variance mainly arises due to the differences in the actual and budgeted rates of wage…

Q: How can the concept of a composite unit be used to explain why an unfavorable total sales-mix…

A: Sales mix variance: The difference between a budgeted and actual sales mix. Sales mix is a…

Q: In a replacement analysis, why are the previous costs irrelevant?

A: Replacement Analysis is a capital budgeting method that determines whether existing assets need to…

Q: High-low and regression cost estimation methods are alike in that they both: Select one: O a. Have a…

Q: Which of the following is NOT true of regression techniques for estimating costs?

A: Cost: Cost can be defined as the cash and cash equivalent which is incurred against the products…

Q: How would an Increase in total fixed costs affect the break-even point and the margin of safety?

A: The break even sales are the sales where business earns no profit no loss during the period.

Q: Problems with a fixed cost that is incurred only if an activity is undertaken at a positive level…

A: If there is a conduct of any activity at any positive level then it incurs an amount of fixed cost…

Q: differential costs where you had to choose between two alternatives

A: Differential cost refers to the difference between the cost of two or more alternative options. It…

Q: If the total materials variance for a given operation is favorable, why must this variance be…

A: Favorable variance means the variance has a positive impact on the budgeted profitability of the…

Q: Future costs that do not differ among the alternatives are not relevant in a decision.

A: In accounting when it comes to making decisions we classify costs into different types or…

Q: What is the difference between a linear and a nonlinear cost function? Give an example of each type…

A: Cost Function:Cost function represents the basic change comes in the total cost due to the change in…

Q: What are some costs associated with high inventories? With lowinventories?

A: Cost associated with inventories are also known as inventory cost. Inventory cost can be classified…

Q: Why are some quality costs hard to measure?

A: Quality Cost: The quality cost refers to the costs associated with the prevention and detection of…

Q: What is the primary disadvantage of basing the costplus pricing formula on absorption cost?

A: Definition: Cost plus-pricing approach: The pricing approach used by the companies to set the target…

Q: Why can cost benefit analysis be difficult to carry out?

A: Introduction: Cost benefit analysis can be defined as a process which is undertaken by an…

Q: Which of the following would not be relevant in a make or buy decision? Unavoidable variable costs…

A: Relevant cost considered for making component inhouse: Direct costs Variable overhead Avoidable…

Q: Optimal replacement interval is negatively correlated with which of the following? a. First cost b.…

A: Optimal replacement interval is negatively correlated with which of the following? Correct Answer-…

Q: Why can unitized fixed costs cause errors in decision making?

A: Decision making process: Decision making process requires an understanding of a grasp of illegal…

Q: What is an outlier? List some possible causes of outliers. How should outliers be handled in cost…

A: Outlier: An outlier is a data point that falls far away from the other points in the scatter diagram…

Q: 2) Which of the following techniques is not used to analyze cost behavior? A) Least-squares…

A: Cost Accounting: It is the process of collecting, recording, analyzing the cost, summarizing cost,…

Q: What is the major disadvantage of the high-low method?

A: High-low method: High-low method is a method of calculating the variable cost and the fixed cost of…

Q: How is uniform cost search different from plain BFS?

A: UCS : Uniform Cost Search is an uninformed search algorithm. It cannot deal with a heuristic…

Q: What effect, if any, would you expect poor-quality materials to hare on direct labor variances?

A: Direct labor variance arises due to the differences in the actual and budgeted rates of wage or…

Q: Which of the following statements related to cost estimation methods is false? O a. The…

A: When some cost is showing combined effect of variable and fixed cost i.e. it is semi variable and…

Q: In using least-squares to estimate the variable and the fixed components in a mixed cost, these two…

A: Least Square method (Linear regression) is a very accurate method for dividing cost into variable…

Q: Which of the following statements related to cost estimation methods is false? O a. The most complex…

A: Cost estimation methods means by which method variable costs and fixed costs of the business can be…

Q: what consequences can broad averaging have on costs?

A: Broad Averaging: Broad averaging is also known as peanut butter cost is a costing approach of…

Q: Which of the following statements is true? Select one: one: a. The most complex of the cost…

A: High-low method: It is the method of estimating the variable cost per unit and the fixed costs by…

Q: Appraisal cost would be high so wait for Failure Cost.

A: In common use, cost refers to the monetary value of products and services purchased by producers and…

Q: In order to draw a basic break-even chart, which of the following information would you not require?…

A: The break even sales are the sales where business earns no profit no loss during the period. The…

Q: Explain why cost predictions based on the same cost driver can differ when applying the high-low…

A: The High-low method is a cost computation technique that separates variable and fixed cost from…

Q: why is it important to keep current cost in lined with planned cost?

A: Current cost means the cost which we are incurring right now. Planned cost means the standard cost…

Q: Explain the behavioral problem that can result when cost-plus prices are based on variable cost.

A: Following is the answer to the given question

Q: what is the definition of fixed, variable, and mixed costs? Are variable costs or fixed costs easier…

A: Introduction: Cost accounting is a type of managerial accounting that capture a firm's production…

Question

What is the chief drawback of the high-low method of cost estimation? What problem could an outlier cause if the high-low method were used?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

What is the basic premise underlying the high-low method of analyzing semivariable costs?
What is an outlier? List some possible causes of outliers. How should outliers be handled in cost estimation?
From the standpoint of cost control, why is the FIFO method superior to the weighted-averagemethod? Is it possible to monitor cost trends using the weighted-average method?
From the standpoint of cost control, why is the FIFO method superior to the weighted-averagemethod?
What is the major disadvantage of the high-low method?
Which of the following is NOT true of regression techniques for estimating costs? a) They permit the inclusion of more than one predictor. b) They typically use the highest and lowest activity points to estimate the relation between cost and activity. c) They help develop estimates that have a broader base than those based on a few select points. d) They are designed to generate a line that best fits a set of data points.
What is the primary disadvantage of basing the costplus pricing formula on absorption cost?
Which of the following is true about the hypothesis test of cost parameters? a) It indicates whether the parameters are different from zero. b) It provides a range of values instead of a single prediction. c) It measures the degree of association between cost and activity output. d) It shows the difference between predicted and actual costs.
Explain why cost predictions based on the same cost driver can differ when applying the high-low method and regression analysis. State one advantage and one disadvantage of the high-low method.
What is the economic rationale for the cost approach? Under what conditions would the cost approach tends to give the best value estimate?
When using the high-low method, should you base the high and low observations on the dependent variable or on the cost driver?
Which of the following statements related to cost estimation methods is false? The least-squares regression method is the most accurate and reliable method to determine the cost behavior compared to scatter-graph plot and high-low methods. O b. The low-high method is used to derive an estimated line of cost behavior by graphically connecting the two cost amounts identified with the highest and lowest volume levels. The three methods determine a slope and an intercept. O d. None of the given answers. The most complex method of cost estimation is the high-low method.