What is the primary weakness of the high low method?
Asked by: Prof. Lacey Welch | Last update: January 25, 2026Score: 4.9/5 (23 votes)
The limitations of the high/low method are as follows: it relies on historical cost data and assumes this data can reliably predict future costs. it assumes that activity levels are the only factor affecting costs.
What is the weakness of high low method?
Disadvantages of High Low Method
The method does not represent all the data provided since it relies on just two extreme activity levels. Those activity levels may not be representative of the costs incurred, due to outlier costs that are higher or lower than what the organization incurs in other activity levels.
Which of the following is a weakness of the high-low method?
Disadvantages of the Method
The high-low method assumes that fixed and unit variable costs are constant, which is not the case in real life.
Which of the following is a disadvantage of the high-low method?
The major disadvantage of the high-low method is that this method only provides estimates of the cost rather than the exact numbers. It does not provide the exact information because it uses only low and high points of the cost and activity and does not consider the average level of activity and cost.
Why is the high low method criticized?
The high-low method is relatively unreliable because it only takes two extreme activity levels into consideration.
High Low Method Example
Is the high low method accurate?
While practical, the high-low method has some limitations. It relies only on the highest and lowest extremes and overlooks other activity levels. This can lead to inaccuracies if these extremes are not typical of regular operations.
What is a problem with using the hi lo method to estimate costs?
One potential issue with the basic approach to the high-low model is that it is vulnerable to outlier data. This can be addressed by hygiene-checking the data before it's used for the calculation. If the business is established, this could be done by comparing the same time period in different years.
What is a disadvantage of the high-low method of cost analysis used by consultants?
The correct answer is a. it uses two extreme data points, which may not be representative of normal conditions. This is because the high-low method uses both the highest and lowest levels of output to separate variable and fixed costs.
What is the high low method method?
The high-low method is an accounting technique used to separate out fixed and variable costs in a limited set of data. It involves taking the highest level of activity and the lowest level of activity and comparing the total costs at each level.
Which of the following is the disadvantage of top down approach?
Ultimately, top-down management doesn't work for everyone. It can limit creativity and slow down problem-solving, so it may not be the best choice for teams that require greater flexibility and responsiveness.
What are the advantages of the high low method?
The main advantage of the high-low method accounting formula is its simplicity. This method only requires two data points to provide estimates related to the cost structure. The high-low method in accounting is the most preferred in the case when accountants need quick information related to the cost model.
What is the high low method of strength and conditioning?
The basic concept of the high/low split is to alternate days of high central nervous system stress with days of low central nervous system stress. This allows you to maximally stimulate and stress the different biological systems of the athlete while still allowing for maximal adaptation and recovery.
What is the high and low method?
The high-low method is an accounting technique used to separate out fixed and variable costs in a limited set of data. It involves taking the highest level of activity and the lowest level of activity and comparing the total costs at each level.
What is the assumption of high low method?
Assumptions of the high low method are as follows: the cost under consideration is potentially semi-variable (i.e. it has both fixed and variable elements) the linear model of cost behaviour is valid i.e. y = a + bx.
What is the difference between the least square method and the high low method?
The high-low method only considers two data points: the highest and the lowest activity for the set of historical data examined. On the other hand, the least squares regression method utilizes all activity levels of the historical data examined.
What is the formula for the break-even point?
To calculate the break-even point in units use the formula: Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or in sales dollars using the formula: Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin. Here's What We'll Cover: What Is the Break-Even Point?
What is the major disadvantage of the high low method?
The disadvantages of high low accounting are below: Because this method ignores step cost, it may produce erroneous results. Step costs are the expenses incurred by a company at a given volume. If the cost falls somewhere between the high and low values, the high-low approach may produce erroneous results.
What is the high low method of marketing?
High low pricing is a pricing strategy in which a firm relies on sale promotions to encourage consumer purchases. In other words, it is a pricing strategy where a firm initially charges a high price for a product and then subsequently decreases the price through promotions, markdowns, or clearance sales.
How does the high low method differ from regression analysis?
Because the high-low method has a lower variable cost estimate and a higher fixed cost estimate than the regression-based predictions, the estimates of total support cost differ depending on the expected machine hour usage. The high-low method used only two data points, so the results may not be reliable.
What is a significant weakness of the high-low method?
A disadvantage of the high-low method of cost analysis is that it: uses only two data points, which may not be representative of normal conditions.
What is the main disadvantage of cost minimization analysis?
The principal limitations of this cost evaluation method are that it can only be used to compare treatments that provide the same benefits or effectiveness (identical outcomes, e.g., therapeutic effects); moreover, costs need to be determined accurately.
What is the chief drawback of the high-low method of cost estimation?
While practical, the high-low method has some limitations. It relies only on the highest and lowest extremes and overlooks other activity levels. This can lead to inaccuracies if these extremes are not typical of regular operations.
What are the advantages of high low method of cost estimation?
The main advantage of this method is that it's simple to calculate. All you require is a list of the levels of manufacturing, their corresponding costs and a calculator. An accountant can also use this method if they don't have all the data to work with.
What is a hi lo pricing strategy?
High–low pricing (or hi–low pricing) is a type of pricing strategy adopted by companies, usually small and medium-sized retail firms, where a firm initially charges a high price for a product and later, when it has become less desirable, sells it at a discount or through clearance sales.
What is the high low method used to determine?
The high-low method is a cost accounting technique that compares the total cost at the highest and lowest production level of business activity. It uses this comparison to estimate the fixed cost, variable cost, and a cost function for finding the total cost of different production units.