ACCT 2101 · Cost Behaviour: Fixed, Variable, and Everything Else

Led by Margaret Vance-Foster Simulacrum

1. Module 1 ○ Open

   Cost Behaviour: Fixed, Variable, and Everything Else

   Led by Margaret Vance-Foster Simulacrum

   The question

   Cost behaviour — how costs change as activity changes — is the foundational concept on which break-even, contribution analysis, and decision-relevant costing all depend. The module covers the variable/fixed/step/semi-variable categories with worked examples, the high-low method for separating variable and fixed components of mixed costs, the scattergraph and regression-analysis alternatives, the relevant range and where the simplifications break down, and the difference between accounting and economic cost behaviour. The closing exercise decomposes a maintenance-cost dataset.

   Outcome

   The student can classify costs into variable, fixed, step, and semi-variable categories; apply the high-low method to separate the variable and fixed components of a mixed cost; identify the relevant range for an analysis; and recognise where the simplifications break down. (Cost behaviour)

   Begin the course → Mark module complete Print certificate of completion

   Practice scenarios

   Decomposing the Maintenance Cost

   Foster Simulacrum gives you twelve months of data for a manufacturing company's maintenance cost line. The data shows production volumes (units) and total maintenance cost (£) for each month. Volumes range from 4,200 units (in February) to 9,800 units (in October). Maintenance cost ranges from £18,500 (February) to £29,400 (October). The CFO wants to budget next year's maintenance cost on a per-unit basis. Foster Simulacrum wants you to demonstrate why that's wrong, using the high-low method.

   Your goals

   • Apply the high-low method: variable rate per unit = (£29,400 − £18,500) / (9,800 − 4,200) = £10,900 / 5,600 = £1.946/unit.
   • Calculate the fixed component: at the high point, total cost £29,400 = fixed + (£1.946 × 9,800) = fixed + £19,071, so fixed = £10,329/month. (Verify at low point: fixed + (£1.946 × 4,200) = £10,329 + £8,173 = £18,502 ≈ £18,500, the small difference being rounding.)
   • Express the cost function: monthly maintenance cost = £10,329 fixed + £1.946 per unit produced.
   • Show why the CFO's "per-unit" approach is wrong: at 4,200 units, the per-unit cost is £18,500/4,200 = £4.40/unit; at 9,800 units, it is £29,400/9,800 = £3.00/unit. Different "per-unit" numbers, none of them the right basis for budgeting next year if volume varies.
   • Recommend: budget the fixed component as £124k/year, plus £1.95 per unit budgeted to be produced.

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