Question

The three methods used to classify costs into their fixed and variable components includes.

Answer 1

The methods used to classify costs into their fixed and variable components are:

• scatter diagrams
• high-low method
• regression analysis

What is a costs classification?

This refers to the way by which economic cost are classified for proper purpose and identification.

Majority of fixed and variable cost are classified by using the scatter diagrams, high-low method and regression analysis.

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Answer 2

Accountants use the following three methods to classify mixed costs into their fixed and variable components:

1. High-low method
2. Scatter graph
3. Regression analysis.

What are mixed costs?

Mixed costs are costs that have both fixed and variable elements.

Fixed (period) costs do not change with changes in the production volume, unlike variable (differential) costs.

Thus, since variable costs are essential for decision-making, management tries to separate mixed costs so that insights into cost structure become clearer using the above three methods.

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