Practice Assessment 2 - Task 6b - Variable or Semi-variable Cost Behaviour

PetrosK

Why is the last cost behaviour semi-variable and not variable?

Pian32

If the unit cost is a variable cost then it will stay the same no matter what the output level is.

e.g 10,000 units costing 1,000 total = unit cost of 0.10, 5,000 units costing 500 total = unit cost of 0.10

If the unit cost is all made of fixed costs then the unit cost will decrease as more output is performed

e.g Using 1000 fixed for above 10,000 units = unit cost 0.1, 5000 units = unit cost 0.2

If the unit cost is made of a mix of variable and fixed then the unit cost will change with output but not proportionally.

e.g 10,000 units total variable cost 800 and fixed 200 = unit cost 0.1

changes to 5000 units total variable cost 400 and fixed 200 = unit cost 0.12


It's likely the behaviour you see in the question is a 4th behaviour you'll see in level 3 called Step-Fixed cost due to it reducing with reduced output instead of increasing.

PetrosK

Thank you for taking the time to comment Pian, I appreciate it.