costs sensitivity

Costs Sensitivity

• Total Fixed Costs P200,000.00• Unit Variable Costs P 20.00

(A)Production

(B)Total Fixed

Cost

( C) Total Variable

Cost(UP*UVC)

(D)Unit Fixed

Cost(TFC/UP)

(E)Unit Variable

Costs

(F)Total Cost

(TFC+TVC)

(G)Total Unit

Costs(UFC+UVC)

0 P200,000 P 0 P 0 P 0 P200,000 P 0

5000 200,000 100,000 40.00 20.00 200,000 40.00

10,000 200,000 200,000 20.00 20.00 400,000 40.00

15,000 200,000 300,000 13.33 20.00 500,000 33.33

Summary of cost behavior:

Costs Fixed Costs Variable Costs

Total Costs Constant, regardless of levels of production and sales.

Changes, in direct proportion to the change in the level of production and sales.

Unit Costs Changes, decreases as production increases and vice versa.

Constant, regardless of levels of production and sales.

How to control? Increase production to reduce unit fixed costs, that is why, fixed cost is related to volume.

Reduce unit variable cost to reduce total variable costs, that is why, variable cost is related to spending.

Mixed Costs

• Costs which could not be perfectly classified as pure fixed costs or pure variable costs.

• Have a characteristics of both the fixed and variable costs.

Semi –variable costChanges in total but not in direct proportion to changes in the level of production and sales.

Semi-fixed costsConstant in a given level of activity but changes , not in a constant way, when a new level of activity is reached.

Step costsConstant in a given level of activity and changes, also in a constant way as new level of activity is reached.