Chapter 3

Chapter 3: Cost behaviour

Cost behavior is the way in which costs alter with changes in the level of output or activity. There are 3 main ways in which costs behave: Fixed Variable Semi-variable

Fixed costs - Do not alter when the level of output or activity changes.Variable costs - Change in proportion to the level of output or activity.Semi-variable costs - Semi-variable costs contain both a fixed element and a variable element. Total costs: Variable costs per unit X Output + Fixed costsUnit costs: Fixed costs / Output + Variable costs per unit