A key factor in helping managers understand cost behaviour is distinguishing between variable and fixed costs. Test your understanding by answering the following questions.

1. A producer of premium ice cream uses ‘litres of ice cream produced’ as a cost driver for the production activity. One of the main resources this activity uses is dairy ingredients. Is the cost of dairy ingredients a variable or a fixed cost?

2. The same company uses ‘supervisory hours’ as a cost driver for the supervision activity. The most costly resource used by this activity is supervisory salaries. Is the supervisory salaries cost variable or fixed?