Question

1. How do fixed and variable costs behave? Why is it understanding their behavior so important when analyzing costs?

2. The long-distance company that you use charges $5.00 per month and $0.10 per minute per call. If your current bill is $25.00, how many minutes did you use?

Answer 1

Ans :

1. Fixed costs are costs that are fixed that do not change with the change in units of production. Total fixed cost is always remains the same while fixed cost per unit changes

Variable cost are costs that change according to the units that are produced. Variable cost per unit will be always the same while total variable cost changes.

In determining the total cost , both play a key role as variable cost will be calculated with the number of units produced and fixed costs remaining the same .

2. charges of $ 5 per month is fixed cost while $ 0.1 per minute per call is variable cost.

Total cost = $ 25.

Total Variable cost = Total cost - Fixed cost

= $ 25 - $ 5

= $ 20

variable cost per unit = $ 20 / $0.1

= 200 minutes