Chapter 10, Problem 10.16E

1.

To determine

Variable Cost:

The Variable cost is that cost which varies with increase or decrease in the level of production. The Variable cost of per unit remains same. Here, it can be said that variable cost has the positive relationship with output of production.

Fixed Cost:

The Fixed cost is that cost which does not change with increase or decrease in the level of the production, but per unit fixed changes with change in the level production. Examples of the fixed cost are rent, wages and insurance.

Regression analysis:

Regression analysis is that term which is used to understand the relationship between the independent variable and the dependent variable.

Mixed cost:

Mixed cost is the combination of variable cost and fixed cost in which the variable cost portion changes as the level of production changes and the fixed cost remains constant.

Cost function:

A cost function is a mathematical expression that shows the relationship between the cost at the different level of output.

High-low method:

High-low method is a method to identify the variable cost and fixed cost from the mixed cost (combination of variable cost and fixed cost).

To determined: The cost function for maintenance

2.

To determine

To explain: Whether the constant in the cost function be used as an estimate of fixed maintenance cost per month.