1. Explanation 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). Estimation of cost function is, Given, The fixed cost is $100,000 (Working notes). The variable cost per unit is $250 per unit. (Working notes). The linear relationship can be estimated in the form of Y = a + b X Where, a is the fixed cost b is the variable cost per trip X is the number of round trips of a helicopter Y is the annual operating cost of a helicopter Substitute $100,000 for fixed cost and $250 per trip for variable cost per trip. Thus, the cost function is, Y = $ 100 , 000 + $ 250 X Working notes: Calculation of variable cost per trip Particulars Number of trips (a) Average cost per trip ($) (b) Total cost per year ($) ( a × b 2. To determine The costs that would be included in a and b 3. To determine Operating budget for the helicopter for 1,200 round-trips.