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

Quizplus · Accepted Answer

The high-low method involves selecting the two extreme data points (highest and lowest) and using them to estimate fixed and variable costs. The method then draws a straight line through these two points to estimate costs at other levels of activity. Therefore, statement C is true. Statements A, B, and D are all false. The high-low method has weaknesses (such as potentially inaccurate results if the high and low data points are outliers), is not necessarily hard to apply (depending on the complexity of the data), and does not use all available data to estimate costs.

Which of the Following Statements Is True When Referring to the High-Low