Fixed, variable and semi-variable costs
Some costs rise with output and some do not. Learn the three kinds of cost behaviour and split a mixed cost with the high-low method.
In this room: 3 tasks, 10 questions
- Costs that move with output, and costs that do not3 questions
- Fixed cost per table2 questions
- Semi-variable costs and the high-low method5 questions
Costs can also be sorted by how they behave when the business makes more or fewer units.
- Variable cost
- rises and falls in step with output. Twice the tables, twice the cost
- Fixed cost
- stays the same in total when output changes, such as rent
Each table uses £430 of oak. The rent of the workshop is £4,000 a month.
Answer the questions below
2 more questions follow in this task.
A fixed cost stays the same in total. So the more tables are made, the less of it each table carries.
Rent and the supervisors' salaries are fixed. Together they are £9,200 a month.
A variable cost is the other way round. It changes in total, but it is the same for each table.
Answer the questions below
1 more question follows in this task.
A semi-variable cost has a fixed part and a variable part. Electricity is one: a standing charge, plus a charge for the power used.
The high-low method splits the two parts. It uses the month with the highest output and the month with the lowest.
- Variable cost per unit: the difference between the two costs, divided by the difference between the two outputs
- Fixed part: the total cost of one of the months, less the variable cost of that month
| Month | Tables made | Electricity bill |
|---|---|---|
| Lowest output | 80 | 540.00 |
| Highest output | 120 | 660.00 |
Answer the questions below
4 more questions follow in this task.