Introduction of Classification according to behaviour
Classification according to behaviour is as follow:
i. Fixed Costs: - Out of the total costs, several costs stay fixed irrespective of changes in the production volume. These costs are termed as fixed costs. The characteristic of these costs is that the total costs stay similar when per unit fixed cost is every time variable. Instances of these costs are salaries, rent, insurance, etc.
ii. Variable Costs: - These costs are variable in nature that is they change as per to the volume of production. Their variability is in similar proportion to the production. For instance, if the production units are 2,000 and the variable cost is Rs. 5 each unit, the sum variable cost will be Rs. 10,000, if the production units are raised to 5,000 units, the total variable costs will be Rs. 25,000 that is the increase is precisely in the same proportion of the production. Other feature of the variable cost is that per unit variable cost stay same when the total variable costs will change. In the instance described above, the per unit variable cost remains Rs. 2 per unit when total variable costs change. Instances of variable costs are direct labor, direct materials, etc.
iii. Semi-variable Costs: - Certain costs are partially fixed and partly variable. Other words, they comprise the characteristics of both types of costs. These costs are neither entirely fixed nor entirely variable. Maintenance costs, supervisory costs etc are instances of semi-variable costs. These costs are also termed as 'stepped costs'.
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