Final answer:
The provided material describes average cost and marginal cost as measures for firms to analyze their cost per unit of output. The common method for understating COGS is not specified. Average cost is total cost divided by quantity, while marginal cost is the cost of producing an additional unit.
Step-by-step explanation:
The most common method of understating the cost of goods sold (COGS) is not provided in the reference material provided. Instead, the reference material focuses on different cost measures that firms may analyze, specifically average cost and marginal cost. To calculate the average cost (AC), you divide the total cost (TC) by the quantity (Q) of output produced (AC = TC/Q). For instance, if producing two widgets costs $44 in total, the average cost per widget is $22. On the other hand, marginal cost (MC) is the cost of producing one additional unit of output, calculated by dividing the change in total cost (ATC) by the change in output (AQ) (MC = ATC/AQ). If the cost of the first widget is $32.50 and the cost of two widgets is $44, the marginal cost of the second widget is $11.50.