Question

In: Accounting

Which of the following costs can show a change in the cost per unit for each...

Which of the following costs can show a change in the cost per unit for each additional unit produced.

Semivariable cost.

Curvilinear cost.

Step-fixed cost.

Step-variable cost.

Fixed cost.

Solutions

Expert Solution

  • Semi-variable cost: These are cost that have characteristics of both the cost – fixed cost and variable cost. Part of the cost is FIXED and part of it is VARIABLE.

Example: Sales manager Salary = $200 per month + $2 per unit Sold.
Sales manager’s salary will increase with every additional unit sold.

Hence, Semi-Variable Cost will show a change in the cost per unit for each additional unit.

  • Curvilinear cost: These are the cost that varies at an ‘inconsistent’ rate. They increase with the increase in production but they vary at an inconsistent manner.

Since, the cost increases when production increases, this will also show a change in the cost per unit for each additional unit.

  • Step-fixed cost: These are the cost that stays FIXED up to a limit, but if the production has to be increased in excess of that ‘level’ additional fixed cost will have to be incurred.

For example, 5000 units can be produced by a company and fixed cost is $10,000. Company receives an order to produce additional 2000 units and requires purchasing of additional equipment at cost $ 5000. Hence, after 5000 units fixed cost increased to $ 15000.

Since Step Fixed cost changes after exceeding a given level of activity, it WILL NOT SHOW a change in the cost per unit for each additional unit.

  • Step-variable cost: Step variable cost also changes after attaining a given level of activity but they are variable in nature.

Hence, Step variable cost also show a change in the cost per unit for each additional unit.

  • Fixed cost: These do not change and remains the same. When the production increase, Fixed cost per increases.

Hence, Fixed Cost will show a change in the cost per unit for each additional unit.

Example:

A

Fixed Cost

$           10,000.00

$                     10,000.00

$            10,000.00

$                 10,000.00

$          10,000.00

$          10,000.00

B

Units produced

5

6

7

8

9

10

C=A/B

Fixed Cost per unit [Decreasing as the unit increases]

$             2,000.00

$                       1,666.67

$              1,428.57

$                   1,250.00

$            1,111.11

$            1,000.00

ekkarill92 answered 1 year ago
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