Which of the following statements is the most accurate based on topics covered in our course this semester?
a. equation y = mx + b relates to the equation for costs.
b. the high low method is a reliable calulation for the cost equation
c. all costs are variable and cannot be estimated
d. fixed costs never change
Solution
a. Equation y=mx+b related to the equation for cost
here y= cost that is being predicted
b= Fixed cost
m=variable cost per unit
x=the cost driver
It is the most accurate statement as compared to others.
b.High low method - The high-low method uses the highest and lowest activity levels of a data set to estimate the portion of a mixed cost that is variable and the portion that is fixed. Because this method uses only the high and low activity levels to calculate the variable and fixed costs, it may be misleading if the activity levels are not representative of the normal activity,
& hence not accurate
c. All costs are variable & cannot be estimated is also not reliable method as it does not consider fixed cost
d. Fixed costs never change is also not accurate.
.
Which of the following statements is the most accurate based on topics.docx
1. Which of the following statements is the most accurate based on topics covered in our course this
semester?
a. equation y = mx + b relates to the equation for costs.
b. the high low method is a reliable calulation for the cost equation
c. all costs are variable and cannot be estimated
d. fixed costs never change
Solution
a. Equation y=mx+b related to the equation for cost
here y= cost that is being predicted
b= Fixed cost
m=variable cost per unit
x=the cost driver
It is the most accurate statement as compared to others.
b.High low method - The high-low method uses the highest and lowest activity levels of a data
set to estimate the portion of a mixed cost that is variable and the portion that is fixed. Because
this method uses only the high and low activity levels to calculate the variable and fixed costs, it
may be misleading if the activity levels are not representative of the normal activity,
& hence not accurate
c. All costs are variable & cannot be estimated is also not reliable method as it does not consider
fixed cost
d. Fixed costs never change is also not accurate.
