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What is an outlier?

Author:
Harold Averkamp, CPA, MBA

In cost accounting, an outlier could be a cost or its related level of activity that is out of line with other observations.

An outlier can be detected by plotting each observation’s cost and related level of activity onto a graph or scatter diagram. If one of those points deviates from the pattern of the other points, it is said to be an outlier.  The outlier could be the result of an accounting error, an unusual charge, or a unique change in volume.

To avoid developing an incorrect formula for estimating future costs, the outlier should be investigated and perhaps excluded.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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