Question

Match each of the following definitions of costs to the cost classifications.

1. This cost is the combined amount of all the other costs.
2. This cost remains constant over a limited range of volume; when it reaches the end of its limited range, it changes by a lump sum and remains at that level until it exceeds another limited range.
3. This cost has a component that remains the same over all volume levels and another component that increases in direct proportion to increases in volume.
4. This cost increases when volume increases, but the increase is not constant for each unit produced.
5. This cost remains constant over all volume levels within the productive capacity for the planning period.
6. This cost increases in direct proportion to increases in volume; its amount is constant for each unit produced.

Answer 1

1. This cost is the combined amount of all the other costs. ⇒ TOTAL COST.

2. This cost remains constant over a limited range of volume; when it reaches the end of its limited range, it changes by a lump sum and remains at that level until it exceeds another limited range. ⇒ STEP-WISE COST.

3. This cost has a component that remains the same over all volume levels and another component that increases in direct proportion to increases in volume. ⇒ MIXED COST

4. This cost increases when volume increases, but the increase is not constant for each unit produced. ⇒ CURVELINEAR COST.

5. This cost remains constant over all volume levels within the productive capacity for the planning period.⇒ FIXED COST.

6. This cost increases in direct proportion to increases in volume; its amount is constant for each unit produced. ⇒ VARIABLE COST.