Question

estimating the fixed and variable components of a mixed cost using the approach involves a detailed analysis of what cost behavior should be. (enter only one word per blank.)

Answer 1

The approach for estimating the fixed and variable components of a mixed cost involves a detailed analysis of cost behavior. By breaking down total costs into fixed costs and variable costs, we can calculate various cost measures such as total cost, average variable cost, average total cost, and marginal cost.

Step-by-step explanation:

The approach for estimating the fixed and variable components of a mixed cost involves a detailed analysis of cost behavior. By breaking down total costs into fixed costs and variable costs, we can calculate various cost measures such as total cost, average variable cost, average total cost, and marginal cost. These calculations help us understand the relationship between cost and production levels.

For example, if we have a fixed cost of $500 and a variable cost of $5 per unit, we can estimate the total cost by adding the fixed cost to the product of the variable cost per unit and the number of units produced. By analyzing the changes in total cost and production levels, we can determine the fixed and variable components of the mixed cost.

Answer 2

Detailed analysis of cost behavior is essential for estimating fixed and variable components of a mixed cost. This involves calculations for total, average variable, average total, and marginal costs. Insight into these costs aids in financial decision-making for a firm.

Step-by-step explanation:

Estimating the fixed and variable components of a mixed cost using the high-low approach involves a detailed analysis of what cost behavior should be. To estimate these components, the process includes determining the cost structure of the firm. This involves calculations for total cost, average variable cost, average total cost, and marginal cost. Consideration of these costs provides a firm with insights into its financial health and aids in the decision-making process. These costs are foundational elements when creating budgets, setting prices, and optimizing operations.

It is crucial to understand that while the numerical calculations for average cost, average variable cost, and marginal cost will vary from firm to firm, the general patterns and economic principles behind these costs remain constant. By analyzing the cost structure following the formulas provided, a firm can make informed economic decisions.