The high-low method:
A) Always selects the highest and lowest data points.
B) Chooses the data points that are likely to produce a line that is representative of the data.
C) Chooses the highest and lowest data points for the dependent variable only.
D) Chooses the highest and lowest data points for the independent variable only.

Question

Quizplus · Accepted Answer

The high-low method is used to estimate the fixed and variable components of mixed costs, where there is a fixed cost associated with providing a service or producing a product and a variable cost that varies with the level of activity. The method involves choosing two data points from the data set, one with the highest level of activity and one with the lowest, and then using them to estimate the fixed and variable components. However, selecting the highest and lowest data points blindly may not produce a line that is representative of the data, as outliers or anomalies in the data may distort the line. Therefore, the best approach is to choose the data points that are likely to produce a line that is representative of the data, based on the analyst's experience and judgment. This may involve selecting data points that are closer to the average level of activity, or that represent a typical or common level of activity in the relevant range.

The High-Low Method