Question: Which Of The Following Best Describes A Step Cost?

What is an example of a fixed cost?

Examples of fixed costs include rental lease payments, salaries, insurance, property taxes, interest expenses, depreciation, and potentially some utilities..

Is the high low method reliable?

The high low method can be relatively accurate if the highest and lowest activity levels are representative of the overall cost behavior of the company. However, if the two extreme activity levels are systematically different, then the high low method will produce inaccurate results.

Why is it important to separate mixed costs into fixed and variable portions?

Question: Why Is It Important To Separate Mixed Costs Into Fixed And Variable Portions? … The Accuracy Of Budgets May Be Reduced If Mixed Costs Are Fully Allocated To Either Fixed Or Variable Costs.

What is step cost behavior?

Stepped cost refers to the behavior of the total cost of an activity at various levels of the activity. When a stepped cost is plotted on a graph (with the total cost represented by the y-axis and the quantity of the activity represented by the x-axis) the lines will appear as steps or stairs rising from left to right.

What is High Low method?

In cost accounting, the high-low method is a way of attempting to separate out fixed and variable costs given a limited amount of data. The high-low method involves taking the highest level of activity and the lowest level of activity and comparing the total costs at each level.

What is a step cost?

Step costs are expenses that are constant for a given level of activity, but increase or decrease once a threshold is crossed. Step costs change disproportionately when production levels of a manufacturer, or activity levels of any enterprise, increase or decrease.

What is high and low point method?

High-low point method is a technique used to divide a mixed cost into its variable and fixed components. … Under high-low point method, an estimated variable cost rate is calculated first using the highest and lowest activity levels and mixed costs associated with them.

How do you calculate High Low method?

What is the High-Low Method?Fixed cost = Highest activity cost – (Variable cost per unit x Highest activity units)Fixed cost = Lowest activity cost – (Variable cost per unit x Lowest activity units)Cost model = Fixed cost + Variable cost x Unit activity.Fixed cost = $371,225 – ($74.97 x 4,545) = $30,486.35.More items…

What are step costs examples?

Examples of Step Fixed CostsThe cost of starting up a new production shift, which includes utilities and the salaries of shift supervisors.The cost of a new production facility, which includes depreciation on the equipment and the salaries of the production line supervisors.More items…•

Which of the following is an advantage of the scatter plot method of separating a mixed cost into its fixed and variable components?

Which of the following is an advantage of using the scattergraph method as a method for separating mixed costs into fixed and variable components? The scattergraph provides a visual representation of the data required to separate mixed costs into their fixed and variable components.

What are the 3 types of cost?

The types are: 1. Fixed Costs 2. Variable Costs 3. Semi-Variable Costs.

What are mixed costs?

Mixed costs are costs that contain a portion of both fixed and variable costs. Common examples include utilities and even your cell phone!

How do you split mixed costs into fixed and variable?

Use the High-Low Method to Separate Mixed Costs into Variable and Fixed ComponentsBased on a table of total costs and activity levels, determine the high and low activity levels. … Use the high and low activity levels to compute the variable cost. … Figure out the total fixed cost.

Is rent a fixed cost?

Unlike variable costs, a company’s fixed costs do not vary with the volume of production. Fixed costs remain the same regardless of whether goods or services are produced or not. … The most common examples of fixed costs include lease and rent payments, utilities, insurance, certain salaries, and interest payments.

What are the 4 types of cost?

Types of CostsFixed Costs (FC) The costs which don’t vary with changing output. … Variable Costs (VC) Costs which depend on the output produced. … Semi-Variable Cost. … Total Costs (TC) = Fixed + Variable Costs.Marginal Costs – Marginal cost is the cost of producing an extra unit.