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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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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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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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See Also This Related BrainMass Solution

Fixed cost and Mixed Costs

You have been studying 'fixed' costs. You learned that a number of 'fixed' costs are actually mixed costs (variable and fixed). Write a two paragraph memo to your manager explaining some of the cost estimation techniques that can help determine the fixed and variable portion of each mixed cost (such as utility costs and maintenance costs). Your response should not be limited to just the definitions of fixed, variable, and mixed costs.

Each comment must be at least 100 words in length. Use the 2x2 matrix to comment (i.e., two things you liked about the posting and two things the student could have included to improve the posting, including errors or excluding erroneous information).

Objective: Explain how to arrive at the appropriate derivation of a cost.
Use effective communication techniques.

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