A Limitation of the High-Low Method Is That

question 141

Multiple Choice

A limitation of the high-low method is that

• A)it is costly to use because it uses a statistical technique to estimate the cost components.
• B)it is complex to calculate.
• C)it can only be used if the levels of activity cover a wide range.
• D)because it is based on only two extreme points, the high and low activity levels, the cost equation may not be truly representative of the cost relationship.

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Definitions:

Foreign Subsidiary

A company owned or controlled by another company (the parent) but located and operating in a country different from the parent company.

Statement Of Retained Earnings

A financial statement that outlines the changes in retained earnings for a specific period, typically impacted by net income and dividends distributed.

Functional Currency

The currency of the primary economic environment in which an entity operates and conducts its business, crucial for financial reporting.

Straight-Line Method

An accounting method of depreciation that allocates an equal amount of depreciation each year over an asset's useful life.