Question

Describe the concept of cost behavior and the differences between fixed, variable, and mixed costs.

Differentiate product costs from period costs and direct costs from indirect costs.

Compare the different types of income statements and the purposes of each.

Please explain to the best of your knowledge one or more of the following:

       1- Product Cost .

       2- Period Cost..

       3- Opportunity Cost

       4- Sunk Cost

       5- Shut -down Costs

       6- Applied manufacturing overhead.

Answer 1

As per policy, only one question is allowed to answer, so answering question 1 :

1) The concept of Cost behavior refers the way the production costs behave differently with the change in the production level. Some costs are totally variable with the change in level of production, called Variable costs and some are totally fixed costs of production, called Fixed Costs, but there exists certain costs which remain fixed upto a level of production and inflates as soon as production level swetch over to next production level, these costs are called mixed costs. Three costs of production :

1) Fixed Costs: Fixed costs are those costs which remain same to a range of production levels. Eg. rent, depreciation, supervisor salary, etc.

2) Variable Costs: Variable costs is the cost that changes with the production level. It is directly proportional to the production level. It increases in the same manner as the production increases. Costs like raw-material, direct labor costs. etc. are examples of the variable costs.

3) Mixed costs are the costs that also called semi-variable costs, where costs contains both the fixed and variable components. The costs remain fixed to a level of production and its inflates as soon as next production level reaches. Eg. repair and maintenance costs, fuel costs, etc.

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