Fixed: costs are fixed over a range of output levels e.g. rent and rates, the cost per unit falls as output increases
Behaviour of Fixed Costs Behaviour of Fixed Costs per Unit
Stepped Fixed Cost
Semi-variable: combine fixed and variable elements e.g. phone bill - fixed rental and charge per unit
Variable: costs vary directly with output e.g. direct materials, direct labour
Behaviour of Variable Costs
Fixed and Variable Costs in Decision-making:
- Using a labour-intensive process with a large number of employees supported by basic machinery (high variable costs: direct labour, low fixed costs: depreciation of machinery)
- Using expensive machinery in an automated process with few employees (low variable costs, high fixed costs)
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