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Cost Behaviour - Coggle Diagram
Cost Behaviour
Fixed Costs
Cost that remain the same.
Not impacted by sales volume
Eg. Rent, Salaries, Insurance etc.
Predominantly Fixed cost business strategy
Must always sell product to generate income to cover fixed costs
May choose low margin, high volume approach to encourage sales
Variable Costs
Change in direct proportion to sales change
Eg. Commission, Shipping, Performance bonus etc.
Predominantly Variable Cost Business Strategy
Does not have to sell as costs only incurred when products produced
Can choose low volume, high margin strategy
Per unit variable cost is constant
Operating Leverage
Fixed cost relative to variable costs
Higher fixed cost to operating costs = high operating leverage
Business good = high rewards
Business bad = high risk