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What is an outlier?

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.