Cost Behavior Patterns

Question 1

What does cost behavior refer to?

Answer 1

Fixed and variable cost

Allows to predict how costs change in response to changes in production or sales

Question 2

What is the high-low method?

Answer 2

Rough estimate of fixed and variable cost components that comprise total cost

The idea is to calculate the change in costs from two production volume extremes

Fixed costs are determined by removing the variable cost component from the total cost