Page 78 - F2 - MA Integrated Workbook STUDENT 2018-19
P. 78
Chapter 4
Identifying cost behaviour
Understanding costs and cost behaviour is important. Managers must be
able to identify if costs are fixed, variable, stepped or semi-variable. If this
cost behaviour is understood then managers are able to estimate or
predict costs going forward.
Example 4
Consider the following costs for a t-shirt printer:
Number of t-shirts printed 100 200
Material $220 $440
Labour $120 $240
Rent $550 $550
Electricity $250 $300
To determine the behaviour of each cost, consider how the cost changes over
the different activity levels.
Material: Material is $220 for 100 units ($2.20 per unit), and $440 for 200
units, ($2.20 per unit). This suggests that material is a variable cost.
Labour: Labour is $120 for 100 units ($1.20 per unit), and $240 for 200 units,
($1.20 per unit). This suggests that labour is a variable cost.
Rent: The total rent cost is $550 for each level of activity. This suggests that
rent is a fixed cost.
Electricity: Electricity is $250 for 100 units ($2.50 per unit) and $300 for 200
units, ($1.50 per unit). This suggests that electricity is a semi-variable cost.
70
