Cost Classification Behaviour(In Relation to Change in Activity)

Cost Classification Behaviour(In Relation to Change in Activity)

1. Fixed Costs

   • costs that incur even if no units are produced e.g. rent, salaries
     • Time period classification
       • costs may not changed in short term but in long term
     • Volume classification
       • costs remains fixed for small but not large changes in output or capacity
     • Joint classification
       • costs that can only be altered jointly
     • Policy classification
       • costs are fixed because of managerial decisions only
     • Avoidable classification
       • costs do not vary and can be eliminated

2. Variable Costs

   • costs which change with a change in the level of activity
     • increases when more units are produced
     • decreases when less units are produced

3. Mixed Costs

   • have properties of both fixed and variable costs
   • mixed costs are split into variable costs and fixed cost