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A company has prepared flexed budgets at two activity levels. The cost per unit of three costs is given below. All three costs behave in a linear manner with respect to activity. Activity level (units)
Cost 10,000 15,000
X $3·0 per unit $2·0 per unit
Y $1·0 per unit $1·0 per unit
Z $3·5 per unit $3·0 per unitIs each of the costs variable, semi-variable or fixed?
X Y Z
A Variable Fixed Semi-variable
B Variable Fixed Variable
C Fixed Variable Semi-variable
D Fixed Variable FixedWhy is Z a semi-variable cost?
Z cannot be completely variable – it is was, then the cost per unit would be the same.
It cannot be completely fixed either, because if it was then the total cost would be the same. As it is, the total at 10,000 is 1000 x 3.5 = $35,000, but the total at 15,000 is 15,000 x $3 = $45,000.
So….it must be semi-variable (i.e. part fixed and part variable).
i have a query…what if ur asked whats the relation between an increase or decrease in the activity level of a semi variable cost,what would happen to the cost per unit? would it decrease or increase ?
The variable cost per unit will stay unchanged.
However with regard to the fixed cost, if the activity increases then the fixed cost per unit will fall, and therefore the total cost per unit will fall.
(Vice versa if the activity level falls).
so when the activity increases or decreases in semi variable costs, the variable cost per unit remains constant?
and for the fixed costs if activity increases, does the variable cost per unit decrease by the same proportion?Mariam:
The cost per unit is partly the variable cost and partly the fixed cost.
As I wrote before, the variable cost per unit remains constant (the total variable cost increases and decreases with the level of activity).
The fixed cost in total remains constant, but the fixed cost per unit will increase or decrease as the level of activity changes.If there is a step-up in the fixed costs, then there will be a step-up also in the fixed cost per unit, but the variable cost per unit will stay constant.
EFAGCollege:
A variable cost is where the total cost changes with the level of activity. The variable cost per unit is fixed – so more units means more total variable cost, fewer units means less variable cost.
The free lecture on this will help you.
so lets say for instance, an increase of 10 percent was noted in the activity level, what effect would it have on the following costs
a) fixed costs
b)variable costs
c)semi fixed costs
d)step fixed costsFixed costs: total fixed costs will not change; fixed cost per unit will fall
Variable costs: total variable cost will increase; variable cost per unit will not change
Semi-variable: total cost will increase; cost per unit will decrease
step fixed costs: total cost will not change, except at the level of activity where the step occurs – at that level it will increase (and then stay at the new level).
cost pe unit will reduce, except at the level of activity where the step occurs – at that level the cost per unit will increase and then start falling again as activity increases further.Have you watched the free lecture?
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