
Concept explainers
Define each of the following terms variable cost, fixed cost, step cost, and mixed cost. Give an example of each.

Concept introduction:
There are three types of costs according to the unit of production; Variable, Fixed and Mixed. Variable costs change proportionally with the number of units produced and variable cost per unit remains constant. Fixed Cost remains same in totality irrespective of the number of units produced.
The mixed cost is the mix of variable and fixed cost, some of its part is fixed and some variable.
To discuss:
The meaning of each type of costs
Answer to Problem 1Q
The meaning of each type of costs is as follows:
- Variable costs: Variable costs change with the level of activity.
- Fixed Costs: Fixed costs remain same irrespective of the level of activity.
- Step Costs: Step Costs remain same up to a level and change after that.
- Mixed Costs: The mixed cost is the mix of variable and fixed cost, some of its part is fixed and some variable.
Explanation of Solution
There are three types of costs according to the unit of production; Variable, Fixed and Mixed. Variable costs change proportionally with the number of units produced and variable cost per unit remains constant. Fixed Cost remains same in totality irrespective of the number of units produced. The mixed cost is the mix of variable and fixed cost, some of its part is fixed and some variable.
The meaning of each type of costs is as follows:
- Variable costs: Variable costs change with the level of activity.
- Fixed Costs: Fixed costs remain same irrespective of the level of activity.
- Step Costs: Step Costs remain same up to a level and change after that.
- Mixed Costs: The mixed cost is the mix of variable and fixed cost, some of its part is fixed and some variable.
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