28 Dec 1. Since a mixed cost has both
1. Since a mixed cost has both a fixed and a variable component, both the total cost and the unit cost will vary with changes in the level of activity.
2. An example of a step cost is the natural gas bill you receive for heating your apartment.
3. Once you know how a particular cost behaves, estimating the total cost is relatively simple.
4. Three methods used for estimating the fixed and variable portions of a cost include: cost-cover graphs, the high-low method and regression analysis.
5. A scattergraph is simply a graph that shows total costs in relation to volume, or activity level.
6. The high-low method of estimating the fixed and variable components of a mixed cost is a precise approach that uses a statistical technique.
7. Unlike the scattergraph, the high-low method requires only two data points – the lowest point of activity and the highest point of activity.
8. To estimate total cost using the high-low method, identify the highest and lowest level of activity and compute the slope of the line.
9. Regression is a more precise method of estimating the fixed and variable components of a mixed cost than the high-low method or a scattergraph.
10. Like the high-low method of estimating the fixed and variable components of a mixed cost, regression analysis uses a statistical technique that identifies the line of best fit.
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