# TYPES OF COST – BASED ON COST BEHAVIOR ## Cost behavior

• Fixed cost
• Variable costs
• Semi variable costs
• Stepped fixed

## Fixed Cost

This cost remains fixed over certain period of time irrespective of units produced. For example rent of building .It’s important to note that fixed cost remains fixed for certain level of activity , after which it increases

Although total cost is fixed for a period but as the number of units increases, the fixed cost per unit decreases.

 Fixed cost 100,000 100,000 Number of units produced 100 200 Cost per unit 100,000/100 = 1000 100,000/200 = 500

FIXED COST

## Variable Cost

Cost that increases with number of units produced. E,g material cost per unit. Total of variable costs increases per but per unit variable cost remain same

 Variable  cost 100,000 120,000 Number of units produced 100 200 Cost per unit 100,000/100 = 1000 120,000/200 = 1000

Variable Cost

## Semi Variable Cost:

Cost that is partly fixed and partly variable .Such type of costs contain both fixed and variable portions.

Examples

• Telephone bill
• Electricity bill
 Suppose According  to electricity bill rules ,gave following rates are applicable:Fixed cost up to 300 units =\$ 3000Units higher than 300 =   20\$ per unit If company ABC uses 500 units then For first 300 units =   3000For next 200 units = 200* 20 = 4000Total cost = \$ 7000