Question

In: Accounting

What are the four methods commonly used to identify the fixed and variable elements of a...

What are the four methods commonly used to identify the fixed and variable elements of a mixed cost? and Identify the strength and weakness of each method identified.

Solutions

Expert Solution

The four methods which are commonly used to identify fixed and variable component of mixed cost are as follows along with their strength and weaknesses:

1. High low point method -

Strength - It is easy and quick method to determine fixed and variable cost. Even with incomplete data, accountant can use this method.

Weakness - The high low method could produce inaccurate figures. This method ignores all data in between extremes and it is based on the assumption that no foreign cost will incur in the production.

2. Scatter graph method - This method segregates total cost graphically.

Strength - It shows relationship between two variables. The range of data flow i.e. maximum and minimum can be easily determined. Plotting the data is relatively simple. Observation and reading is straightforward.

Weakness - This method can not give exact extent of correlation. This method does not show exact relation between two variables and it can show you relationship only between two variables.

3. Least squares regression method - This method is based on the technique for estimating relation between variables.

Strength - This method is very east to explain and understand. This method can be applied to any applications. This method makes very efficient use of the data. Good results can be obtained with relatively small data sets.

Weakness - It is limited to liner relationship. It is affected by outlier. This method is very much rigid in the sense that if any change in made in the series, it will need through revision of the trend equation to fit a trend line and find the trade values.

4. Accounting analysis method - This is a method of estimating cost associated with the product.

Strength - This method is based on the estimation and prior experience. So this method is very easy to use and cheap. From this method, we can segregate cost between fixed and variable easily.

Weakness - As this is based on estimation, results will not be accurate. Any change in assumption will lead to wrong results.


Related Solutions

.Identify three research methods that are commonly used in educational psychology.
.Identify three research methods that are commonly used in educational psychology.
For financial accounting purposes, there are four commonly used depreciation methods. MACRS is not allowed under...
For financial accounting purposes, there are four commonly used depreciation methods. MACRS is not allowed under GAAP - only for income tax purposes. What are the four methods? How is depreciation calculated under each method? What would be the journal entry for recording deporeciation expense for each method?
The following four methods are commonly used for solving systems of equations: 1.    Graphing 2.    Substitution...
The following four methods are commonly used for solving systems of equations: 1.    Graphing 2.    Substitution 3.    Addition 4.    Determinants and Cramer’s Rule Pick one method and discuss the pros and cons of that method. Provide an example of a problem that can be easily solved using your chosen method and an example of a problem that would be more difficult to solve using your method. Review your classmates’ responses to find a classmate who chose a different method. Discuss...
There are four V’s commonly used to describe four aspects of big data: ……………… for the...
There are four V’s commonly used to describe four aspects of big data: ……………… for the scale of data, ……………… for analysis of streaming data, ……………… for different forms of data &   ……………… for the uncertainty of data. Spark uses parallel   ……………… to create RDDs from data in stable storage & performs various   ……………… on RDDs (working dataset) in memory at high speed. Three commonly used cloud service models in the service-oriented architecture are:   ………………, ………………, &   ………………. Hadoop can...
There are a number of commonly used research methods that apply to the study of Learning....
There are a number of commonly used research methods that apply to the study of Learning. Describe one method that you think is the most important. Explain how this method has been used to research key findings in the field of Learning Theory. Propose your own research question related to Learning and Behavior that you might be interested in researching. How would you use this method to study your own question? Discuss any ethical considerations relating to either animal or...
The following are different categories of costs: Variable, Fixed (committed), Fixed (discretionary), and Mixed. Identify what...
The following are different categories of costs: Variable, Fixed (committed), Fixed (discretionary), and Mixed. Identify what type of cost is best represented by the following examples of costs and briefly explain why. The answer to the first one, Rent, is provided as an example: Rent is a fixed, committed cost because it does not change due to differences in activity levels. In other words, rent is always a cost that will be due regardless of business activity level. It is...
Describe the characteristics of drilling methods that are commonly used for geotechnical assessments on land and...
Describe the characteristics of drilling methods that are commonly used for geotechnical assessments on land and in marine environments. In your answer you should describe: a) the drilling process, b) the materials that can be drilled, b) the nature of the sample that is retrieved, c) the typical depth of investigation, d) the relative merits of each technique that you recommend.
There are three methods of evaluating capital projects that are commonly utilized. What are these methods?...
There are three methods of evaluating capital projects that are commonly utilized. What are these methods? Do they all depend on time value methods?
identify and describe the four inventory valuation methods
identify and describe the four inventory valuation methods
Fixed and variable costs for four potential plant locations are shown below: Location Fixed Cost Variable...
Fixed and variable costs for four potential plant locations are shown below: Location Fixed Cost Variable Cost per Year per Unit A $200,000 $18 B $120,000 $25 C $150,000 $20 D $250,000 $18 not using excel please. The maximum production volume is 40,000 units. Find the best location based on the maximum production volume. Find the volume range/location recommendations.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT