Please enable JavaScript.
Coggle requires JavaScript to display documents.
DIFFERENT TYPES OF COSTS (Stepped Fixed Costs (Normally fixed within the…
DIFFERENT TYPES OF COSTS
Classification
Direct & Indirect
Used in Absorption Costing
(costing that charges both direct & indirect (and fixed & variable) to units of output or activity)
-
Variable & Fixed
Used in Marginal Costing
(costing where variables are charged to units and fixed are charged against profit as a period expense)
-
Variable Costs
A function of the level of activity
e.g. when activity doubles, costs double
-
Fixed Costs
-
Costs are incurred even if activity is 0
e.g. Rent, salaries etc
Cost behaviour
-
Within relevant range, variable costs increase with output
Within relevant range, fixed costs remain constant, regardless of output
As volume of activity declines, unit cost increases
Stepped Fixed Costs
-
Outside relevant range, fixed costs can chance
-
e.g. An accounting practice can cope with so many clients but above a certain level of activity, a new accountant must be employed increasing fixed costs
If the new accountant could be hired on a casual basis, his wages would count as variable costs
-
-