Cost behavior identification
C1
Listed here are four series of separate costs measured at various volume levels. Examine each series and identify whether it is best described as a fixed, variable, step-wise, or curvilinear cost. (It can help to graph each cost series.)
Volume (Units) | Series 1 | Series 2 | Series 3 | Series 4 |
0 | 1 0 | 1150 | $ 900 | $100 |
100 | ... 800 1.500 | 150 150 | 800 8OO | 105 |
200 | 120 | |||
300 | . 2,400 | 150 | 1,600 | 145 |
100.. | 3,200 | 150 | 1.500 | 190 |
500 | 4.000 | 150 | 2.400 | 250 |
600 | 4.800 | 150 | 2.400 | 320 |
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Variable Cost:
The cost which changes with the change in level of activity is called a variable cost.
Fixed Cost:
Fixed Cost is rigid in nature and does not change according to the change in the level of activity.
Step-Wise Costs:
Step-wise costs do not changes within a range of level of activity, and changes in lump sum when the level of activity goes beyond the range.
Curvilinear cost:
The costs which increases or decreases in an inconsistent or irregular manner are called curvilinear cost.
Identifying each series as fixed, variable, step-wise, or curvilinear cost
Answer to Problem 1QS
Solution:
Series | Type of Cost |
Series 1 | Variable Cost |
Series 2 | Fixed Cost |
Series 3 | Step-wise Cost |
Series 4 | Curvilinear Cost |
Explanation of Solution
Series 1 is a variable cost because it increases in consistent manner according to the increase in volume.
Series 2 is fixed cost because the $450 is fixed for the all level of sales volume.
Series 3 is Step-wise cost as it increases in lump sum and does not increase within the range.
Series 4 is curvilinear cost because it increases in a very irregular manner.
Hence is concluded that according to the explanation provided, the series 1 is variable cost, series 2 is fixed cost, series 3 is step-wise cost and series 4 is curvilinear cost.
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