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What are the benefits of categorizing costs into fixed, variable, semifixed, and semivariable, if they are...

What are the benefits of categorizing costs into fixed, variable, semifixed, and semivariable, if they are aggregated most of the time?

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Answer #1

As we know that dividing costs between variable, fixed, semifixed and semi-variable is very important for better cost planning and cost control. If we do not categorize costs into fixed, variable, semifixed, and semi-variable then a firm will not be in the position to better controlling of costs.

We know that fixed costs remain same for a certain range of production whereas variable costs change for every additional unit of output. So when nature of these costs is not same then planning and controlling of these costs can not be done on overall basis, that is why proper categorization into fixed, variable, semifixed, and semi-variable becomes necessary.

If they are aggregated most of the time then a firm will not be able to find out the rate of change of variable costs and level of fixed costs for a certain range, hence it is necessary to categorize costs.

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