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CH3-PART1.pptx - CHAPTER 3 COST BEHAVIOUR: ANALYSIS & USE –...

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CHAPTER 3COST BEHAVIOUR: ANALYSIS & USE – PART 1
CostbehaviourCost behaviour — how changes in volumeaffect costs. 3 types of cost behaviours:Variable costsFixed costsMixed costs
Keycharacteristics ofvariablecostsTotal variable costs change in directproportion to changes in volumeVariable cost per unit remainsconstantSlope of the line represents variablecost per unitTotal variable cost (y) = Variable cost per unitof activity (v) x Volume of activity (x)y = vx
Step-Variable CostsResources that are obtainable only in large chunks, and whose costsincrease or decrease only in response to fairly wide changes in activityExample: The cost of employing maintenance workersVolumeCost
ExamplesofVariableCostsType of OrganizationCosts That AreNormally Variable withRespect to Volume of OutputMerchandising companyCost of goods (merchandise) soldManufacturing companyManufacturing costs:Direct materialsVariable portion of manufacturing overhead:

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