The Most Serious Shortcoming of the High-Low Method of Estimating

question 15

Multiple Choice

The most serious shortcoming of the high-low method of estimating a mixed cost function is that it:

• A) usually overestimates the total cost.
• B) is based on a very small portion of the available data.
• C) focuses on fixed costs only and ignores variable costs.
• D) can only be used if contribution margin income statements are also being used.

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Definitions:

Short Run

A period in which at least one input is fixed and firms cannot adjust all inputs to production.

ATC

Average Total Cost; the total cost of production divided by the quantity of output produced.

Price Charged

The amount of money required for the purchase of a good or service, set by the seller.

Maximize Profits

The process by which a company seeks to achieve the highest possible financial gain from its operations, often by adjusting production, prices, and costs.