The high-low method and least-squares regression are used by managers to ________.

Question

BlackTom AI · Accepted Answer

1. Relevant knowledge points and concepts:
Both the high-low method and least-squares regression are cost-estimation tools used to separate a mixed (semi‑variable) cost into its fixed and variable components. Mixed cost = fixed cost + (variable cost per unit × activity). High-low is a simple two-point technique; least-squares regression (often called ordinary least squares) is a statistical method that fits the best straight line through many observations by minimizing the sum of squared errors.

2. Step-by-step reasoning process:
- Purpose: Managers need the cost function (fixed and variable portions) to forecast total costs at different activity levels, prepare budgets, and perform break-even and contribution-margin analyses.
- High-low uses the observations with the highest and lowest activity to compute the variable cost per unit and then derives fixed cost.
- Regression uses all observations to compute the slope (variable cost per unit) and intercept (fixed cost) that best fit the data.

3. Calculation example with intermediate steps (high-low):
Assume highest activity = 10,000 units with total cost = $50,000; lowest activity = 2,000 units with total cost = $26,000.
- Change in cost = 50,000 − 26,000 = 24,000
- Change in activity = 10,000 − 2,000 = 8,000
- Variable cost per unit = 24,000 / 8,000 = $3.00 per unit
- Fixed cost = total cost at high activity − (variable × activity) = 50,000 − (3.00 × 10,000) = 50,000 − 30,000 = $20,000
- Cost function: Total cost = $20,000 + $3.00 × units
(Regression would produce a similar form but uses all data points and provides goodness-of-fit measures.)

4. Why the correct answer is correct:
Both methods produce estimates of cost behavior—specifically the variable cost per unit and the fixed cost—so managers can estimate total costs at different activity levels. That is the primary and direct purpose of these techniques.

5. Why other options are incorrect (brief):
Other plausible managerial activities—such as evaluating employee performance, setting product prices directly, or controlling quality—are not the primary objective of these two methods. While cost estimates can inform pricing or control decisions, the explicit function of high-low and least-squares is to estimate the cost function (fixed and variable components).

6. Conclusion:
Therefore, the correct answer is “estimate costs,” which matches the provided answer.

The high-low method and least-squares regression are used by managers to ________.单项选择题

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