Cost behavior refers to how a cost reacts to changes in the
level of activity within the relevant range.
Total variable costs change when activity changes.
Total fixed costs remain unchanged when activity
changes.
Variable Cost
Total cost of batteries is based on the number of autos produced
in a month.
Variable Cost Per Unit: The
per unit cost of batteries remains constant at $24.
Fixed Cost:
Total cost of monthly rent is fixed for the number of lab tests
performed in a month. The monthly rent does not change based on the number of
lab tests that may be performed during the month.
Fixed Cost per Unit increases and decreases inversely and
changes in activity. For example the average cost per unit will fall as the
number of test performed increases.
Summary
of Variable and Fixed Cost Behavior
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