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Costs sensitivity
1. Costs Sensitivity
• Total Fixed Costs P200,000.00
• Unit Variable Costs P 20.00
(A)
Production
(B)
Total Fixed
Cost
( C)
Total Variable
Cost
(UP*UVC)
(D)
Unit Fixed
Cost
(TFC/UP)
(E)
Unit Variable
Costs
(F)
Total Cost
(TFC+TVC)
(G)
Total Unit
Costs
(UFC+UVC)
0 P200,000 P 0 P 0 P 0 P200,000 P 0
5000 200,000 100,000 40.00 20.00 200,000 40.00
10,000 200,000 200,000 20.00 20.00 400,000 40.00
15,000 200,000 300,000 13.33 20.00 500,000 33.33
2.
3. Summary of cost behavior:
Costs Fixed Costs Variable Costs
Total Costs Constant, regardless of
levels of production and
sales.
Changes, in direct
proportion to the change
in the level of production
and sales.
Unit Costs Changes, decreases as
production increases and
vice versa.
Constant, regardless of
levels of production and
sales.
How to control? Increase production to
reduce unit fixed costs,
that is why, fixed cost is
related to volume.
Reduce unit variable cost
to reduce total variable
costs, that is why, variable
cost is related to spending.
4. Mixed Costs
• Costs which could not be perfectly classified
as pure fixed costs or pure variable costs.
• Have a characteristics of both the fixed and
variable costs.
7. Semi-fixed costs
Constant in a given
level of activity but
changes , not in a
constant way,
when a new level
of activity is
reached.
8. Step costs
Constant in a given
level of activity and
changes, also in a
constant way as
new level of
activity is reached.
Editor's Notes
-consists of a fixed component and a variable component.
EXAMPLE:
Cost of operating automobile includes some fixed cost that do not change with number of miles driven (e.g. operating license, parking, some of depreciation) costs that vary with number of miles driven (gasoline, oil changes, tire wear)
Phone and Internet usage are a mixed cost for service businesses. For example, businesses can usually get fixed phone line fees and standard monthly rates for Internet access. However, making lots of calls or web usage beyond a basic data limit, or making unexpected calls overseas, may lead to extra charges. These make up the variable part of the total cost as they change from month to month.