9609 · 5.4.1
Cost information
9609 AS - fixed vs variable costs, total and average cost, and why accurate cost data matters for decisions.
Need to know
What you need to know
- **Short run only:** Fixed costs are fixed only in the time period given - rent may be fixed this year but renegotiated next year.
- **Direct vs indirect** is different from fixed vs variable - a cost can be direct (traceable to a product) and still fixed (e.g. supervisor salary for one product line).
- **Classify before calculating** - mislabelling a variable cost as fixed destroys break-even and contribution answers.
Explanation
Cost information
- **Short run only:** Fixed costs are fixed only in the time period given - rent may be fixed this year but renegotiated next year.
- **Direct vs indirect** is different from fixed vs variable - a cost can be direct (traceable to a product) and still fixed (e.g. supervisor salary for one product line).
- **Classify before calculating** - mislabelling a variable cost as fixed destroys break-even and contribution answers.