Cost Behaviour

• A learning about how costs change as volume changes in an organization.

• Important for : (1) management’s effort plan to make good decisions and

(2) accurate projections.

(3) to calculate the company’s break-even point and cost-volume- profit analysis.

(1) Variable Cost

• expenses that vary directly proportion to the quantity of the output.

• For example : the cost of ingredients such as Takoyaki’s flour, sauce, bonito flakes, frozen baby octopus, frozen

prawn meat and seaweed powder.

• Total Variable cost equation :

Total variable cost (y) = Variable cost per unit of activity (v) x Volume of activity (x) or

Y= vx

where, y = total variable cost

v= variable cost per package

x = number of packs

• Volume : 480 packs of Takoyaki.

Y= vx

Y= RM 1.90(480 packs)

Y= RM 912.00

• 300 packs of Takoyaki.

Y= vx

Y= RM 3.30 (300 packs)

Y= RM 570.00

 

• Highest quantities produced was during the month of December = 480 packs of Takoyaki• Lowest quantities produced was during the month of August = 200 packs of Takoyaki.• Increase about 280 packs by 140%.• Reasons : (1) recession time of holiday season or semester break.

(2) final exam season during the month .

Month Quantity Produced (Packs)

Variable Cost Per Pack (RM)

Total Variable Cost (RM)

JANUARY 480 1.90 912.00FEBRUARY 300 1.90 570.00MARCH 600 1.90 1140.00APRIL 560 1.90 1064.00MAY 600 1.90 1140.00JUNE 660 1.90 1254.00JULY 320 1.90 608.00AUGUST 200 1.90 380.00SEPTEMBER 480 1.90 912.00OCTOBER 520 1.90 988.00NOVEMBER 580 1.90 1102.00DECEMBER 680 1.90 1292.00TOTAL (RM) 5980 1.90 11362.00

Table 1:The table of variable cost per pack and total variable cost (RM).

• The vertical axis (y-axis) shows total variable costs, while the horizontal axis (x-axis) shows total volume of packs of Takoyaki that are being sold.

• Graph of variable costs always begin at the origin. For example, there will not incur any variable costs if there did not have any production occurred.

Figure 1: Total Variable Cost Per Year (RM).

0

500

1000

1500

0 480 300 600 560 600 660 320 200 480 520 580 680

Fixed Costs • Incurred cost that remains unchanged regardless of the output.• For example : rental cost, promoting cost , transport and cost of petrol.

Table 2: The total fixed cost of Takoyaki (RM) per month.

Rental RM 30.00 Transport (petrol) RM 20.00 Promoting RM 20.00 Total fixed cost per month RM 70.00

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0

1020304050607080

Total Fixed Cost (RM)

Total Fixed Cost (RM)

Figure 2: Total fixed cost per year (RM)