AAT L2 Cost Behaviour

Variable Cost is a cost that changes in proportion to the level of output or activity. (a)  

• True
• False

Fixed cost is a cost that does alter in total when the level of output or activity changes. (a)  

• True
• False

Semi-variable cost, is a cost that contains both a fixed element and a variable element. (a)  

• True
• False

Identify fixed costs

• Employee paid basic wage plus commission based on production quantity

• rent of the factory workshop

• print ink used for letterhead and logos

Identify semi-variable costs

• Employee paid basic wage plus commission based on production quantity

• rent of the factory workshop

• print ink used for letterhead and logos

Identify variable costs

• Employee paid basic wage plus commission based on production quantity

• rent of the factory workshop

• print ink used for letterhead and logos

CALCULATE THE FIXED COST PER ITEM:

Munich Ltd makes outdoor gym equipment. It incurs fixed costs of £50,000 per year in relation to the manufacture of its outdoor treadmills. Calculate the fixed cost per treadmill at 25,000 output level.

• fixed cost per treadmill £50

• fixed cost per treadmill £5

• fixed cost per treadmill £2

• fixed cost per treadmill £0.50

CALCULATE THE TOTAL VARIABLE COST PER ITEM:

Munich Ltd also incurs £35 per treadmill for variable costs in manufacturing the treadmills. Calculate the total variable cost for the treadmills, at output levels of 1,000 and 25,0000 units.

• £350,000 and £87,500

• £35,000 and £875,000

Methods of absorption used in businesses include:

• units of output method

• alpha-numeric method

• direct labour hours method

• machine hours method

• investment method

Which cost is associated with - Profit centre

• Selling and marketing the products in a retail shop

• Mixing, filling and packing the sausages

• Storage in freezers in the warehouse