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Q4E

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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

A company reports the following information about its unit sales and its cost of sales. Each unit sells for $500. Use these data to prepare a scatter diagram. Draw an estimated line of cost behavior and determine whether the cost appears to be variable, fixed, or mixed.

Period

Unit sales

Cost of sales

Period

Unit sales

Cost of sales

1

22,500

$15,150

4

11,250

$8,250

2

17,250

11,250

5

13,500

$9,000

3

15,750

10,500

6

18,750

$14,250

The cost appears to be curvilinear because it is not increasing at a constant rate.

See the step by step solution

Step by Step Solution

Step 1: Definition of Scatter Diagram

The diagram under which the data related to cost and the units manufactured is plotted on the graph is known as a scatter diagram.

Step 2: Plotting on Scatter Diagram

Step 3: Classification of cost

The above cost cannot be classified as fixed because it is increasing as the production does and also it is not increasing at a constant rate therefore, it is not a variable cost. It is a curvilinear cost because the cost is increasing as per the volume of production but not at a constant rate.

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