Question

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explain total cost behavior for fixed costs. provide two examples of total cost behavior for fixed costs

Answer 1

Costs behaviour refers to relationship between total cost and activity level. Based on behavior, costs are categorized as fixed, variable and mixed costs. Fixed costs are constant regardless of activity level.

Fixed costs are those costs which do not change with the level of activity within the relevant range . These costs will be incurred even if no units are produced. Ex. Rent, depreciation, electricity etc.

Fixed cost per unit decreases with increase in production.

Example of total cost behavior of fixed cost

1. Total fixed cost is 30000 and units produced are 3000,5000,6000 in 3 cases respectively. In case 1 FC per unit is 10/- and case 2 it is rs.6 and in case 3 it is rs 5.