AA025 Chapter 3 & 4

A variable cost per unit remains constant at various levels of activity.

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A fixed cost remains constant in total and also on a per unit basis at various levels of activity.

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If volume increases, all costs will increase.

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If the activity level decreases, total variable costs will decrease proportionately.

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Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions.

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The high-low method can be used in classifying a mixed cost into its variable and fixed elements.

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In high-low method; the difference between the costs at the high and low levels of activity represents the FIXED COST element of a mixed cost.

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The fixed cost element of a mixed cost is the cost of having a service available.

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When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element.

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We study about cost behaviour is to help us understanding CVP Analysis elements.

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