Instructor%20Notes%20-%20Chapter%2014

Instructor%20Notes%20-%20Chapter%2014 - Management 200T...

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Management 200T Cost Analysis for Planning Chapter 14 Cost Classifications Relationship of Total Cost to Volume of Activity Raw material or direct labor requirements will depend on the planned level of production The planned level of production will depend on the planned level of sales The idea that a cost is classified as a fixed cost does not necessarily suggest that the amount to plan for in the budget will not change from year to year. The important point is that fixed costs will not change as the volume of activity changes (within the relevant range) but could change as a result of the managerial decision-making process. Cost Classification according to a Time-Frame Perspective Committed cost – one that will be incurred to execute long-range policy decisions to which the firm has “committed” Discretionary cost – one that can be adjusted in the short run (usually on an annual basis) as management evaluates the organization’s available resources and prioritizes the annual budget requests.
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Management 200T Cost Analysis for Planning Chapter 14 Budgeting
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