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    Cost Classification- Variable and Fixed Costs

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    Costs can be classified into 2 categories, fixed and variable costs. These costs behave differently based on the level of sales volume. Suppose we are running a restaurant and have identified certain costs along with the number of annual training of 1000.

    Item:raw material (costs for hamburgers )
    Total annual cost :650
    Item : building rent
    Total annual cost :9000

    Identified with cost item above is fixed and variable and why?What is the cost per unit of each? Suppose we increased our sales volume to 6000 units and then 8000 units the following year ( and are still within the relevant range ), what would be the total annual cost and unit cost of fixed and variable cost?

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    Solution Preview

    Fixed Cost: Building rent
    This cost has to be paid irrespective of how many hamburgers are made. Even when no hamburgers are made this cost has to be paid for.

    Variable cost: Raw materials (costs for ...

    Solution Summary

    The solution calculates total annual cost and unit cost of fixed and variable cost.