The cost components of a heater include $35 for the compressor, $12 for the sheet molded compound frame, and $80 per unit for assembly. The factory machines and tools cost is $55,000. The company expects to produce 1,500 heaters in the coming year. What cost function best represents these costs?

Cost behavior is how costs respond to changes in cost drivers. It can help determine business decisions and cost drivers.  Here are some ways to determine how costs behave: High-low method: An accounting technique that uses financial data to estimate fixed and variable costs. It can help determine expenses and identify patterns over time. Least squares regression: A method that can overcome weaknesses in the high-low method. It minimizes the sum of residuals, which is the squared distance from a point to a line. Scattergraph: A graph that shows the relationship between total cost and... Show more

Cost behavior is how costs respond to changes in cost drivers. It can help determine business decisions and cost drivers. 

Here are some ways to determine how costs behave:
High-low method: An accounting technique that uses financial data to estimate fixed and variable costs. It can help determine expenses and identify patterns over time.
Least squares regression: A method that can overcome weaknesses in the high-low method. It minimizes the sum of residuals, which is the squared distance from a point to a line.
Scattergraph: A graph that shows the relationship between total cost and activity level. It can help determine the nature of the relationship and if the linearity assumption is valid.
Plot: A graph that shows the general relationship between the cost driver and costs. It can provide insight into the relevant range of the cost function and reveal if the relationship is approximately linear. 

Here are some other related terms:

Fixed costs: A cost that remains unchanged regardless of output level.
Quantitative analysis: A process that uses numerical techniques to measure value. It can help identify a few high-value alternatives to analyze in depth.
Profit: A factor based on revenue and cost. Profits increase when revenue increases and costs decrease. 

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