Cost Behaviour

Question 1

Limitations of high-low method

Answer 1

• Only estimates the cost, actual cost might differ
• Assume each unit of material cost the same
• Uses the most extreme figures observed
• Assume cost rates in the future will be the same as in the past

Question 2

Can fixed cost turns into stepped-fixed cost ?

Answer 2

YES

Over the long term, with wide range of activity, fixed cost may behave as stepped-fixed.

Question 3

Can stepped-fixed cost turn into variable cost?

Answer 3

YES

Etc : Over time, as output increases, rent also increases, step by step, exhibiting variable behaviour

Question 4

Formula for ROCE/ROI

Answer 4

= PBIT @Operating profit / Capital employed

Question 5

Capital employed

Answer 5

Non-Current Liabilities + Total equity

@

Total asset - Current liabilities

Question 6

Formula for asset turnover

Answer 6

Sales / Capital employed