ACCA PM · Chapter 11 · Question 10 of 10
Which of the following is a limitation of the high-low method of cost estimation?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It uses only the highest and lowest activity observations, which may not be representative of normal conditions
Explanation
The high-low method is simple and separates fixed and variable elements, but it relies on just two observations. If either is unusual, the estimate will be distorted. Regression analysis uses all data points and is therefore usually more reliable.
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