Wk 2 Cost Classification

Question 1

Describe the behaviour pattern of Fixed Costs:

Answer 1

Fixed costs remain constant despite variations within specified activity or output levels

Question 2

Describe the behaviour pattern of semi-fixed costs:

Answer 2

Semi-fixed costs are fixed within specified activity levels, but do eventually increase by some amount at critical activity levels i.e. “stepped” costs

Question 3

Describe the behaviour pattern of Semi-variable costs:

Answer 3

Include both a fixed and variable component

Question 4

Describe what is meant by the term Cost Volume Profit Analysis (CVP):

Answer 4

The study of the interrelationships between costs and volume and how they impact profit

Question 5

Ways in which CVP can aid management:

Answer 5

• Setting prices for products/ services
• Introducing new products/ services
• Replacing a piece of equipment
• Make or buy decisions
• Performing strategic “what if?” analysis