a. Two rules of thumb to use are( a) total fixed costs remain unchanged regardless of changes in cost-driver activity level, and( b) the per-unit variable cost remains unchanged regardless of changes in cost-driver activity level.
b.
Two rules of thumb to use are( a) how useful the analysis is to managers who want an estimate of the general relationship between production volume and costs, and( b) variable costs per unit increase as the cost driver increases but total variable costs remain constant.
c.
Two rules of thumb to use are( a) fixed costs per unit remain constant as the cost driver activity increases but total fixed costs decrease, and( b) variable costs do not vary with changes in the cost driver but do vary in direct proportion to the change in the cost driver.
d.
Two rules of thumb to use are( a) that the analysis is only as well as managers understand the cost behavior and how well managers can control the costs, and( b) the analysis examines how decisions about the volume of production and sales affect costs to ensure the company remains profitable.
6. The following cost function is a mixed cost.
Total cost = $ 8,000 + $ 52 x units produced
Explain why it is a mixed cost and not a fixed, variable, or step cost.
The $ 8,000 is a fixed cost and the $ 52 per unit is a variable cost.