Post 2 - Reference Kinney& Raiborn Cost Accounting...

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Tammy Harden 8 Apr 11 12:07 PM MST Initial Response: The high-low method is not always the best points for prediction because it analyzes the mixed cost by first selecting the highest and the lowest levels of activity in a data set if these two points are within the relevant range. Activity levels are used because activities cause costs to change, not vice versa. Occasionally, operations occur at a level outside the relevant range, or cost distortions occur within the relevant range. A potential weakness of the high-low method is that outliers can inadvertently be used in the calculation. A second weakness of this method is that it considers only two data points. A more precise method of analyzing mixed costs is least squares regression analysis.
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Unformatted text preview: Reference: Kinney & Raiborn, Cost Accounting Foundations and Evolutions(2011) Hi Tammy, Determining the cost of goods sold is an important part of analyzing profitability. In a manufacturing environment, there can be a lot of variables involved in producing the final product. There are fixed costs, variable costs and costs that can be both fixed and variable. Using the high-low method can also help to figure what a given cost would be at a certain level of production. This method can also be used to calculate the cost of goods sold, depending on techniques used like absorption costing and variable costing methods. Jack...
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