Cost behaviour
Cost behaviour describes how total cost responds to changes in activity volume: fixed costs stay constant in total, variable costs rise proportionally, and mixed costs combine a fixed base with a variable element.
Also known ascost behavior
See it move
A cost-behaviour chart plots three cost lines against activity volume on the x-axis and total cost in euros on the y-axis. The fixed cost line is horizontal, unchanged by volume. The variable cost line starts at the origin and rises proportionally with output. The mixed cost line begins at a non-zero standing charge and then climbs with a constant slope, combining a fixed element with a variable element; the visual note confirms: fixed stays flat, variable rises from the origin, mixed has a standing charge then a slope.
The formula
Variables
- total cost (€)
- total fixed cost (constant within the relevant range) (€)
- variable cost per unit of activity (€ per unit)
- activity level (units produced, machine hours, etc.) (units)
The general mixed cost equation. Set FC = 0 for a purely variable cost; set v = 0 for a purely fixed cost.
Check yourself
A firm's monthly factory lease costs €8,000 regardless of output. Materials cost €6 per unit produced. Production rises from 2,000 units last month to 3,000 units this month. Which statement correctly describes how each cost changes?