Question

what are the benefits and disadvantages of the scatter diagram and the high-low method

Answer 1

Benefits of scatter diagram:-

1. It is easy to plot even by a beginner

2. It is very simple and very easy to understand even by a single glance.

3. Abnormal values in a sample can be easily detecetd.

4. We can find the values of some dependent variables if unknown.

5. Values of extreme terms donot effect when correlation is calculated by this method.

Disadvantages of scatter diagram:-

1. This method depicts only if relation is positive or negative or no relation. But degree of correlation can’t be predicted.

2. No mathematical or Algebraic Treatment is possible to the result.

3. The method is useful only when number of terms is small i.e. it can’t be applied to 3-4 terms.

4. The method is also useless when number of terms is very big i.e. in hundreds.

Benefits of high-low method:-

1. The primary advantage of this method is its simplicity.

2. All you need to use the high-low method is a list of manufacturing levels and their corresponding costs and a calculator.

3. Simply eyeballing the output levels to identify the lowest and highest points and three simple steps involving subtraction and division are sufficient to come up with variable cost levels per unit.

4. In addition, the accountant may be able to employ this method even if she is working with incomplete data.

5. If the CEO must know the variable costs immediately, the accountant could call the factory manager, for instance, who may be able to quote the highest and lowest output levels with ease over the phone, while a complete breakdown of each week's numbers could take hours.

Disadvantages of high low method:-

1. The high-low method could produce inaccurate figures if either the highest or lowest output levels represent abnormal deviations from usual activity.

2. For instance, a firm that makes between 100 and 300 shirts a week may be forced to manufacture 1,000 units during a particular week and pay expedited airmail charges for the raw material, which would normally arrive by truck.

3. The abnormally high cost levels during the week may be unrepresentative of usual cost levels and produce misleading results.

4. Unusually low output levels, too, may cause similar distortions in results.