FREE IGNOU MCO-05 SOLVED ASSIGNMENT 2023

2) Distinguishing Between Various Costing Concepts:

(a) Variable Costs and Fixed Costs:

Variable Costs:

– Variable costs are expenses that vary in direct proportion to changes in production or sales levels.
– They increase when production or sales increase and decrease when production or sales decrease.
– Examples of variable costs include raw materials, direct labor, commissions, and packaging costs.
– In the income statement, variable costs are typically allocated to the cost of goods sold (COGS) or the variable cost of sales.

Fixed Costs:

– Fixed costs are expenses that remain constant within a relevant range of activity, regardless of changes in production or sales levels.
– They do not change with fluctuations in production or sales volume.
– Examples of fixed costs include rent, insurance, property taxes, and salaries of certain employees.
– In the income statement, fixed costs are often grouped separately and treated as period costs.