Question

Acc105

Chapter 11 - Cost Behavior ( discussion board):

Please provide your thoughts on this simple example of cost behavior and then add an example of your own.

What do you typically pay for a large pizza? (There is no right or wrong price - just pick a reasonable price)
What would be the cost per student if two students buy that pizza?
What if four students buy a large pizza?
What does this illustrate about why average fixed costs change on a per-unit basis?

Let's add the fact that a beverage costs $1 and each student eating the pizza has one beverage. So, if two people were eating the pizza, the total beverage bill would come to $2; if four people, $4. The cost per beverage remains the same, but the total cost depends on the number of people ordering a beverage.
What does this tell us about how total variable costs vary per units (or in this case students)?

Please provide another basic example of cost behavior (related to fixed or variable).

Answer 1

1. The exact distinction of Fixed Costs and Variable Costs, happens depending on the number of units or the volume.

2. In the case of VARIABLE COSTS, this depends exactly on the number of units / population / volume.

3. But in the case of FIXED costs, the the costs, the number of units or the population would not influence the Costs.

It would remain the same irrespective of the units.

4. Hence in the case of Large Pizza (with Cheese Burst extra toppings), 60 dollars, would not change if the pizza is shared by 4 people or 8 people.

5. But the Beverage Cost which is $1 per beverage changes depending on number of users. If there are 4 friends the cost is $4, 8 friends the cost is $8, 10 friends the cost is $10. Hence here the cost is variable cost.

6. However, the food expenses per month would directly depend on the number of inmates. Hence its is variable cost depending on the number of inmates. More the inmates more the monthly food bill. Hence it is variable cost