Question

1.The different aspects of variable costs, fixed costs, and mixed costs. (Consider how they behave in regards to both total costs and unit costs.)

2.Discuss their behavior in regards to the relevant range.

Please write a paragraph for each so I can understand a little better.

Answer 1

Cost behavior refers to the way different types of costs of production change when there is a change in production level. There are mainly three types of costs according to their behavior:

--Fixed cost: Fixed costs refer to those costs which do not change with the activity level within the relevant range. Such costs will incur even if no units are produced. Fixed cost per unit declines with increase in production.

-- Variable cost: Variable costs refer to those costs that change in direct proportion to the production level. The total variable cost increase when more units are produced and reduces when fewer units are produced. Although these costs are variable in total, but costs are constant per unit

--Mixed costs: These costs also known as semi-variable costs have properties of both fixed as well as variable costs due to presence of both fixed and variable components in them. Due to the variable component, they fluctuate with volume; and due to the fixed component, they do not change in direct proportion to output