ACCT2301-002-chap2-sp2009

ACCT2301-002-chap2-sp2009 - Chapter 2 Cost Behavior adapted...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Chapter 2 Cost Behavior adapted from  Fundamental  Cornerstones of Managerial  Accounting Heitger, Mowen and Hansen (2008) Professor D. Collins
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Learning Objectives – Chapter 2 Explain the meaning of cost behavior, and  define and describe fixed and variable costs Define and describe mixed and step costs. Separate mixed costs into their fixed and  variable components using the high-low  method, the scattergraph method, and the  method of least squares.
Background image of page 2
Motivation for Understanding Cost Behavior Understanding how costs behaved in the past informs us as  to their likely behavior in the future (a BIG assumption), thus  allowing us to predict costs. Decision making involves choosing between alternatives.   Managers need to know the costs that are likely to be  incurred for each alternative (e.g., how much will costs  increase if sales increase by 10 percent?) The link to firm value? More accurate cost prediction Better decisions Greater firm value
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Cost Behavior Cost category         In Total          Per Unit     Variable Total variable cost         Variable cost per unit   changes as the           remains the same over level of the activity          wide ranges of the         changes activity     Fixed               Total fixed cost    Fixed cost per unit remains constant as       decreases (increases)                the activity level            as the activity level          changes  increases (decreases) The above descriptions imply that the relation between cost and  activity can be described by a straight line.
Background image of page 4
The Relevant Range The  relevant range  is defined as the activity range  over which the assumed cost relation is valid. This implies that, within the relevant range, both  variable cost  per unit  ( V ) and  total  fixed costs ( F are assumed to remain essentially unchanged. The relevant range includes the upper and lower  limits of past activity for which data are available. However, outside the relevant range, both  F  and  V   are likely to change.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Types of Fixed Costs Committed fixed costs  – fixed costs that cannot be  changed easily once incurred.  These relate to the  investment in facilities, equipment, and the basic  organizational structure of the firm.  Examples  include depreciation of buildings and equipment,  taxes on real estate, insurance, etc. Discretionary fixed costs
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/16/2009 for the course ACCT 2301 taught by Professor Staff during the Spring '08 term at Texas Tech.

Page1 / 26

ACCT2301-002-chap2-sp2009 - Chapter 2 Cost Behavior adapted...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online