In describing the cost formula equation Y = a + bX,which of the following statements is correct?
A) The X term is the dependent variable.
B) The a term is the fixed component.
C) In the high-low method, the b term equals change in activity divided by change in costs.
D) As the X term increases, the Y term decreases.

Question

Quizplus · Accepted Answer

The a term represents the fixed costs in the cost formula equation Y = a + bX, where Y is the total cost, a is the total fixed cost, b is the variable cost per unit of activity, and X is the level of activity.

In Describing the Cost Formula Equation Y = a