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variable cost is a cost that vary proportionately with changes in activity level.
So, if a direct worker is paid based on number of units he produce……….its a variable cost as more units he produce(activity) more the wages will increase proportionately.
but in case if we pay the worker on hourly basis then with what activity we will compare to show total variable cost graph……….units produced or hours worked.
another question cost vary with activity level. Does the activity level refers to the corresponding activity or activity level only refers to the units produced?
like in case of telephone cost it vary with mins talked over phone
petrol cost vary with kms travelled or liter consumedIf he is a direct worker then the hours per unit will be fixed (at least for Paper F2 – things get more interesting in Paper F5).
Therefore you could draw a graph against either hours or against unit – both would be a straight line.
(and, of course, you cannot ever be asked to produce graphs in the exam)
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