What does total cost consist of in cost accounting?

Total cost in cost accounting is defined as the combination of total fixed costs and total variable costs incurred by a business. Fixed costs are those that do not change with the level of production or sales, such as rent or salaries, while variable costs are directly tied to the level of production, such as raw materials or direct labor costs.

In this context, when considering total cost, it is essential to account for how variable costs can fluctuate based on estimated levels of activity. By adding together total fixed costs and variable costs that are calculated based on projected production levels (estimated activity), one gets the total cost by which goods are produced or services rendered. This provides a comprehensive view of what it actually costs to operate the business at a given level of output.

This approach helps businesses make informed decisions regarding pricing, budgeting, and financial planning by having a clear understanding of their cost structure. Hence, the option that states total fixed cost plus variable cost based on estimated activity accurately captures the essence of how total cost is calculated in cost accounting.