Question

15) Weakness of the high-low method include all of the following EXCEPT: a) only two observations are used to develop the cost function. b) the high and low activity levels may not be representative. c) the method does not detect if the cost behavior is nonlinear. d) the method is relatively complex and difficult to apply. Answer: _(3 points)

Answer 1

Answer-(d) the method is relatively complex and difficult to apply.

Meaning- The high-low method is a cost accounting process which is used to separate fixed costs and variable costs from a mixed cost. It is easy to use as it only needs two data values. So, the statement (d) is an advantage of high low method not a weakness.

Weakness of high low method-

• The high low method takes two observations to develop the cost function. The high low method uses highest level of activity and the lowest level of activity and compare it to total costs at each level.
• The high low method doesn't represent all the data provided as it depends on two activity levels. So, the high and low activity levels may not be representive because the outlier costs that are lower or higher than the organisation incurs in other activity levels.
• The high low method works efficiently if the cost behavior is linear. So, the Statement (c) is a weakness of high low method as it does not detect if the cost behavior is nonlinear.

​​​​​​​Statement (d) is not included in the weakness of the high-low method. It is an advantage of high-low method as it is easy to use and apply.