What are the different types of cost?
- Costs can be classified as fixed, variable or mixed
- The nature of fixed and variable costs relates to whether such costs are likely to alter in total with changes in activity
- Fixed costs are those costs which remain the same in total (within a given range of activity and timeframe) irrespective of the level of activity
e.g. lease costs, depreciation charges
- When we consider levels of activity in terms of units of output:
- total fixed costs remain the same, but
- fixed costs per unit will decrease as the number of units produced increases
- Variable costs change in total as the level of activity changes e.g.
- - costs of bricks to build a house
- - aviation fuel for Qantas
- Variable costs can be considered on either a total or unit basis
- Mixed costs occur some costs have both fixed and variable components
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