In describing the cost formula equation, Y = a + bX, which of the following is correct:
A) "Y" is the independent variable.
B) "a" is the variable cost per unit.
C) "a" and "b" are valid for all levels of activity.
D) in the high-low method, "b" equals the change in cost divided by the change in activity.

Question

Quizplus · Accepted Answer

In the cost formula equation Y = a + bX, "Y" is the dependent variable (not independent). "a" is the fixed cost and not the variable cost per unit. "a" and "b" are valid only for a specific range of activity levels. "b" in the cost formula equation equals the variable cost per unit, but in the high-low method, "b" equals the change in cost divided by the change in activity.

In Describing the Cost Formula Equation, Y = a