9609 · 5.4.1
Cost information
**Cost information** (5.4.1) is the foundation for all **9609 AS** finance calculations in unit 5.4. Before break-even, contribution, or budgeting, you must **correctly classify costs** as fixed or variable. Examiners often hide classification in a case paragraph - underline each cost and label it before calculating.
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.