Which of the following statements is true concerning the use of linear analysis at high activity levels (above the range for which the company's facility was designed)?
A)Linear analysis is well suited for estimating total costs at high activity levels.
B)Linear analysis likely understates total costs at high activity levels.
C)Linear analysis likely overstates total costs at high activity levels.
D)Linear analysis of high activity levels fails to capture the fact that total fixed costs decrease as more units are produced.

Question

Quizplus · Accepted Answer

Linear analysis assumes a linear relationship between costs and activity levels, which may not hold at high levels of activity. At high activity levels, there are likely to be additional costs related to capacity constraints, equipment breakdowns, or other factors. Therefore, linear analysis may underestimate total costs at high activity levels.

Which of the Following Statements Is True Concerning the Use