Understanding of cost behavior patterns is important in making financial planning and cost control decisions. Required: In relation to the above statement, describe three ways in which costs...

Understanding of cost behavior patterns is important in making financial planning and cost
control decisions.

Required:

In relation to the above statement, describe three ways in which costs might be classified
according to behavior.

In relation to the above statement, describe three ways in which costs might be classified
according to behavior.

Variable costs

These are costs that increase or decrease, in total, in direct proportion to changes in the total level
of activity or number of units produced i.e. that portion of the cost of an activity that change with
the level of output. They are costs which tend to vary directly with the levels of output.
Fixed Costs
These are costs whose total will tend to remain fixed irrespective of changes in output they do
not change with the level of output. They are also called autonomous costs, as they remain the
same irrespective of the activity level e.g. Salaries, rent etc.

Semi variable costs

These are costs with both a fixed and variable cost component. ie. They are fixed up to certain
output levels and thereafter increase and get fixed at higher levels. They are partially fixed and
partially variable

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marto answered the question on February 15, 2019 at 07:41

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