The linear equation Y = a + bX is often used to express cost formulas.Which of the following representations in this equation is correct?
A) The b term represents variable cost per unit of activity.
B) The a term represents variable cost in total.
C) The X term represents total costs.
D) The Y term represents total fixed costs.

Question

Quizplus · Accepted Answer

The b term in the equation Y = a + bX represents the variable cost per unit of activity, which means the cost that varies with the level of activity. The a term represents the fixed cost in total, which remains constant regardless of the level of activity. The X term represents the level of activity, which is usually measured in units. The Y term represents the total cost, which is the sum of fixed and variable costs.

The Linear Equation Y = a + BX Is Often