Arial 12 BI U a AV BV AV EV GOALS AND OBJECTIVES To understand what a variable cost is and how it behaves. To understand what a fixed cost is and how it behaves To understand what a mixed or semi-variable cost is, and how it behaves To understand the most common ways of separating mixed costs and WHY we need to do this? ALABAMA CORPORATION .... makes and sells chairs. They are looking for ways to better predict the electricity costs. They have gathered the following information regarding occupancy days and electricity costs for the previous 12 months: Electricity Month Occupancy Costs Days January S 920,000 45,000 February 600,000 25,000 March 500,000 20,000 April 1,100,000 90,000 May 1,140,000 95,000 June 620,000 30,000 July 880,000 38,000 August 910,000 48,000 September 1,060,000 78,000 October 960,000 51,000 November 1,400,000 96,000 December 980,000 54,000 REQUIRED: 1. Classify the electricity costs by behavior. WHY is this the case? ASSUME for questions 2-9 that the company wishes to use the High-Low method to further analyze these costs and break them into variable and fixed components: 2. WHY is it necessary to separate mixed costs into variable and fixed components? 3. Conceptually, what does the high-low method look to accomplish? What are the advantages and disadvantages of using this method? . WHY do you think the company is attempting to use occupancy days as a predictor of electricity costs? 5. What would be the variable cost rate? (that is, the variable cost per occupancy day) 6. How much of the electricity cost would be considered fixed? the COST FUNCTION that th