1. Since a mixed cost has both a fixed and a variable component both the total cost and the unit cost will vary with changes in the level of activity. 2. An example of a step cost is the natural gas bill you receive for heating your apartment. 3. Once you know how a particular cost behaves estimating the total cost is relatively simple. 4. Three methods used for estimating the fixed and variable portions of a cost include: cost-cover graphs the high-low method and regression analysis. 5. A scattergraph is simply a graph that shows total costs in relation to volume or activity level. 6. The high-low method of estimating the fixed and variable components of a mixed cost is a precise approach that uses a statistical technique. 7. Unlike the scattergraph the high-low method requires only two data points – the lowest point of activity and the highest point of activity. 8. To estimate total cost using the high-low method identify the highest and lowest level of activity and compute the slope of the line. 9. Regression is a more precise method of estimating the fixed and variable components of a mixed cost than the high-low method or a scattergraph. 10. Like the high-low method of estimating the fixed and variable components of a mixed cost regression analysis uses a statistical technique that identifies the line of best fit.
