Question

1. What is Mixed Costs and how can this cost be separated? 2. When replacing an...

1. What is Mixed Costs and how can this cost be separated?

2. When replacing an old machine with a new machine, how relevant is the trade in value of the old machine?

3. For a cost or revenue to be relevant in decision making, what are the condition that must be met?

4. What is the relationship of both variable and Fixed Costs to output or activity level?

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Answer #1

1. Mixed costs are costs which consist of both variable and fixed costs. These can be separated by using the regression or high low method.

2. The trade in value of the old machine is relevant as it reduces the effective cost of buying the new machine.

3. For a cost or revenue to be relevant, it has to change if an alternative decision is taken.

4, Variable cost remains constant per unit but changes overall in relation to the output. Fixed cost remains constant for a relevant range. It decreases per unit as production within the relevant range increases.

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