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Cost Behaviour

A learning about how costs change as volume changes in an organization. Important for : (1) managements effort plan to make good decisions and (2) accurate projections. (3) to calculate the companys break-even point and cost-volume- profit analysis.

(1) Variable Cost expenses that vary directly proportion to the quantity of the output. For example : the cost of ingredients such as Takoyakis flour, sauce, bonito flakes, frozen baby octopus, frozen prawn meat and seaweed powder.

Total Variable cost equation :


Total variable cost (y) = Variable cost per unit of activity (v) x Volume of activity (x) Y= vx where, y = total variable cost v= variable cost per package x = number of packs or

Volume : 480 packs of Takoyaki. Y= vx Y= RM 1.90(480 packs) Y= RM 912.00

300 packs of Takoyaki. Y= vx Y= RM 3.30 (300 packs) Y= RM 570.00

Table 1:The table of variable cost per pack and total variable cost (RM). Month JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER TOTAL (RM) Quantity Produced (Packs) 480 300 600 560 600 660 320 200 480 520 580 680 5980 Variable Cost Per Pack (RM) 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 Total Variable Cost (RM) 912.00 570.00 1140.00 1064.00 1140.00 1254.00 608.00 380.00 912.00 988.00 1102.00 1292.00 11362.00

Highest quantities produced was during the month of December = 480 packs of Takoyaki Lowest quantities produced was during the month of August = 200 packs of Takoyaki. Increase about 280 packs by 140%. Reasons : (1) recession time of holiday season or semester break. (2) final exam season during the month .

Figure 1: Total Variable Cost Per Year (RM).


1500 1000
500 0 0 480 300 600 560 600 660 320 200 480 520 580 680

The vertical axis (y-axis) shows total variable costs, while the horizontal axis (x-axis) shows total volume of packs of Takoyaki that are being sold. Graph of variable costs always begin at the origin. For example, there will not incur any variable costs if there did not have any production occurred.

Fixed Costs
Incurred cost that remains unchanged regardless of the output. For example : rental cost, promoting cost , transport and cost of petrol.
Table 2: The total fixed cost of Takoyaki (RM) per month. Rental Transport (petrol) Promoting Total fixed cost per month RM 30.00 RM 20.00 RM 20.00 RM 70.00

Figure 2: Total fixed cost per year (RM)

Total Fixed Cost (RM)


80 60 40 20 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Fixed Cost (RM)