Question

The three widely used quantitative methods of separating a mixed cost into its fixed and variable components are the high-low method, the scatter plot method, and the method of least squares.

a. True
b. False

Answer 1

The statement is true; the high-low method, scatter plot method, and method of least squares are all widely used quantitative methods to separate mixed costs into fixed and variable components, fostering a clear understanding of a firm's cost structure. The correct option is A.

Step-by-step explanation:

The statement that the three widely used quantitative methods of separating a mixed cost into its fixed and variable components are the high-low method, the scatter plot method, and the method of least squares is true. All three methods are utilized to break down total costs into fixed cost and variable cost, providing insights for a firm's cost structure.

• The high-low method uses the highest and lowest levels of activity and their associated costs to estimate the variable and fixed cost components.
• The scatter plot method involves plotting historical cost data on a graph to visually identify the relationship between activity levels and costs.
• The method of least squares (also known as linear regression) statistically estimates the cost function, providing a more precise analysis than the high-low or scatter plot methods.

Each of these methods has its own advantages in terms of ease of use and accuracy, making them important tools for cost analysis in a business setting.