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Fixed cost:
Costs that is constant in total over the relevant range.
Or
Cost that remains constant in total dollar amount within relevant range of activity.
Fixed costs include things like rent, insurance premiums, salaries, depreciation and
property taxes.
Other example:
Straight-line depreciation is an example of a fixed cost. It does not matter whether the
machine is used to produce 1,000 units or 10,000,000 units in a month; the depreciation
expense is the same because it is based on the number of years the machine will be in
service.
Variable cost:
Variable costs vary in total with volume, but are constant per unit within the relevant
range. Total variable costs for a given situation are equal to the number of units
multiplied by the variable cost per unit. Variable costs include things like labor and
materials. Some overhead [indirect costs] such as indirect labor, supplies and some
utilities are also variable. Note that the graph of a variable cost is a straight line with
positive slope, beginning at the origin. The slope of the variable cost line is the variable
cost per unit.
Other example:
If it takes one yard of fabric at a cost of $5 per yard to make one chair, the total materials
cost for one chair is $5. The total cost for 10 chairs is $50 (10 chairs × $5 per chair) and
the total cost for 100 chairs is $500 (100 chairs × $5 per chair).
Step-variable cost:
A resource that is obtainable only in large chunks and whose costs increase or decrease
only in response to fairly wide changes in activity is known as step-variable cost.
Mixed cost:
A mixed cost contains both fixed and variable elements. Mixed costs are also known as
semi variable costs.
The Y-intercept of a mixed cost line is the total fixed costs. The slope is the variable cost
per unit, and any point on the line represents the total cost at the indicated volume.
As mixed cost is a straight line, the following equation is used to express relation
between mixed cost and level of activity:
Y=a+bX
In this equation,
Y=The total mixed cost
a=The total fixed cost
b=The variable cost per unit of activity
X=The level of activity
Suppose total fixed cost is $25000 and variable cost per unit of activity is $3.00 and
activity level is 800 rafting parties. Then total mixed cost will be;
Other example:
For example, a company pays a fee of $1,000 for the first 800 local phone calls in a
month and $0.10 per local call made above 800. During March, a company made 2,000
local calls. Its phone bill will be $1,120 ($1,000 +(1,200 × $0.10)).