Chapter 1: Section 2 Determining the fixed and variable elements of semi-variable costs

Question 1

What must be known to determine the semi-variable costs at a given level of activity?

Answer 1

Both the fixed element amount and the variable element rate

Question 2

Why is splitting out the fixed element amount and the variable element rate important?

Answer 2

Will help the org forecast the cost at a future activity level

Question 3

Draw the graph for splitting out the variable and fixed cost

Answer 3

Refer to page 8 of the book

Question 4

Formula to learn for total cost.

Answer 4

Fixed cost + (VC per unit x output)

Question 5

How many steps does the high-low method have?

Answer 5

4

Question 6

What are the 4 steps in the high-low method?

Answer 6

1. Select the highest and lowest output level and their costs
2. Find the difference in the output and costs
3. Calculate the variable cost per unit
4. Calculate the fixed cost

Question 7

Care must be taken to determine the nature of what?

Answer 7

The fixed cost base

Question 8

In the assessment, how may fixed costs be presented?

Answer 8

May be presented with fixed costs that exhibit a stepped behaviour