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Mixed costs - Scatter diagram In a scatter diagram all...

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Mixed costs Some costs, called  mixed costs , have characteristics of both fixed and variable costs. For example,  a company pays a fee of $1,000 for the first 800 local phone calls in a month and $0.10 per local call  made above 800. During March, a company made 2,000 local calls. Its phone bill will be $1,120  ($1,000 +(1,200  ×  $0.10)).  To analyze cost behavior when costs are mixed, the cost must be split into its fixed and variable  components. Several methods, including scatter diagrams, the high-low method, and least-square  regression, are used to identify the variable and fixed portions of a mixed cost, which are based on  the past experience of the company.
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Unformatted text preview: Scatter diagram . In a scatter diagram , all parts would be plotted on a graph with activity (gallons of water used, in the example graph later in this section) on the horizontal axis and cost on the vertical axis. A line is drawn through the points and an estimate made for total fixed costs at the point where the line intersects the vertical axis at zero units of activity. To compute the variable cost per unit, the slope of the line is determined by choosing two points and dividing the change in their cost by the change in the units of activity for the two points selected....
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