Question

Felix & Co. reports the following information about its unit sales and cost of sales. Draw an estimated line of cost behavior using a scatter diagram, and compute fixed costs and variable costs per unit sold. Then use the high-low method to estimate the fixed and variable components of the cost of sales.

Period	Unit	Cost of sales	Period	Unit	Cost of sales
1	0	\(2,500	6	2,000	\)5,500
2	400	3,100	7	2,400	6,100
3	800	3,700	8	2,800	6,700
4	1,200	4,300	9	3,200	7,300
5	1,600	4,900	10	3,600	7,900

Short answer

It is a mixed cost because the business entity has to incur $2,500 even if the production is 0.

Step-by-step solution

Definition of Cost Behavior

Cost behavior of the respective cost refers to how the specific cost behaves when the level of activity increases or decreases. The cost is classified based on this behavior only.

Scatter diagram