Question:
The variable component of the mixed cost increases as activity increases, so the total cost increases. The fixed component of the mixed cost causes the cost per unit to think is variable. What is the unit of activity that makes this cost variable? decrease with activity, since those fixed costs are spread over more units.
1. Express the relationship between total cost (TC), variable cost per unit (VC), volume (x), and fixed cost (FC) in equation form.
2. Explain how a scatter graph is used to separate a mixed cost into its fixed and variable components.
3. Explain how the high-low method is used to separate a mixed cost into its fixed and variable components for cost estimation.
4. Given a choice between the high-low method, a scatter graph, or regression analysis, which method would you prefer for separating a mixed cost into its fixed and variable components? Why?
5. Explain the concept of the relevant range. How does a company"s relevant range differ from the steps found in a step cost?