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Variable, Fixed and Mixed Cost. Scatter diagram

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1. Define variable cost, fixed cost, and mixed cost.

2. What is a scatter diagram? How is a scatter diagram used to estimate cost behavior?

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1. Define variable cost, fixed cost, and mixed cost.

2. What is a scatter diagram? How is a scatter diagram used to estimate cost behavior?

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A variable cost is a cost that changes in direct proportion with changes in the cost driver. If, for example, a firm is producing bicycles and each handle bar costs $10, then the total cost of handle bars will be related to the total number of bicycles the firm produces. The number of bicycles is the cost driver in this case. If production is 2,000 bicycles then the cost of handle bars will be $20,000 (2,000 x $10). The cost of handle bars ...

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