Week 4, LO 1 Demo

# Week 4, LO 1 Demo - Week 4 Week 4 Skill Building...

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Week 4 Week 4 Skill Building Demonstration Problem 1 Understand how fixed and variable costs behave and how to use them to predict costs. Learning Objective 1 Variable cost is a cost whose dollar amount varies in direct proportion to changes in the activity level (production). For example, to make a bar of soap is cost \$1 each and you receive an order in for 10 bars. It would cost \$10 to produce the 10 bars of soap for this order. If you receive a second order for 15 bars it would cost \$15 to make the 15 bars of soap for this order. The total cost depends on how many bars of soap you produce. This is referred to as an activity base, a measure of whatever causes the incurrence of variable cost. Below are graphical representations of the relationship between total cost and per unit cost per bar of soap. True variable cost s are costs that are proportional to the level of production activity. Step variable costs

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Week 4, LO 1 Demo - Week 4 Week 4 Skill Building...

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