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6E

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Financial & Managerial Accounting
Found in: Page 836
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Felix & Co. reports the following information about its unit sales and cost of sales. Draw an estimated line of cost behavior using a scatter diagram, and compute fixed costs and variable costs per unit sold. Then use the high-low method to estimate the fixed and variable components of the cost of sales.

Period

Unit

Cost of sales

Period

Unit

Cost of sales

1

0

$2,500

6

2,000

$5,500

2

400

3,100

7

2,400

6,100

3

800

3,700

8

2,800

6,700

4

1,200

4,300

9

3,200

7,300

5

1,600

4,900

10

3,600

7,900

It is a mixed cost because the business entity has to incur $2,500 even if the production is 0.

See the step by step solution

Step by Step Solution

Step 1: Definition of Cost Behavior

Cost behavior of the respective cost refers to how the specific cost behaves when the level of activity increases or decreases. The cost is classified based on this behavior only.

Step 2: Scatter diagram

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