Cost Behaviour Flashcards
Cost behaviour.
Describe the following cost patterns (how does the cost vary with production/unit increases):
- Variable cost
- Fixed cost
- Stepped fixed cost
- Mixed cost
Cost behaviour.
Variable cost - Varies directly with the volume of output.
Fixed cost - Unaffected by changes in volumes of output
Stepped fixed cost - Fixed within certain levels of output
Mixed cost - Contain a fixed and variable element
Chapter Summary
Cost behaviour and output - Cost behaviour is the way in which costs are affected by changes in the volume of output.
A fixed cost will be unaffected by an increase or decrease in volume output.
A step cost is a cost which is fixed in nature within certain volumes of output.
A variable cost is a cost that will vary will output. The variable cost per unit is thsame amount for each unit produced.
Cost Estimation.
The fixed and variable element of a mixed cost can be determined by the high/low method.
The high/low method
Step 1 - Find highest & lowest output and cost
Step 2 - Find the difference
Step 3 - Calculate the VC/unit
Step 4 - Substitute to find the FC
