Chapter_2 - Cost Behavior Fixed and Variable Costs Cost...

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Cost Behavior Fixed and Variable Costs
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Cost Behavior How costs are related to and affected by the activities of an organization.
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Cost Behavior – Total Costs Cost behavior deals with the way a cost responds to changes in activity levels. Total variable costs change when activity changes. Total fixed costs remain unchanged when activity changes.
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Cost Behavior – Per Unit Costs Cost behavior deals with the way a cost responds to changes in activity levels. Per unit variable costs remain unchanged when activity changes. Per unit fixed costs change inversely when activity changes.
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1. Think of fixed costs as a total. Total fixed costs remain unchanged regardless of changes in cost driver activity. Guidelines
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Guidelines 2. Think of variable costs on a per-unit basis. The per-unit variable cost remains unchanged regardless of changes in the cost- driver activity.
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Total Variable Cost Example Your total long distance telephone bill is based on how many minutes you talk. Minutes Talked Total Long Distance Telephone Bill
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Variable Cost Per Unit Example Minutes Talked Per Minute Telephone Charge The cost per long distance minute talked is constant. For example, 10 cents per minute.
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Total Fixed Cost Example Your monthly basic telephone bill probably does not change when you make more local calls. Number of Local Calls Monthly Basic Telephone Bill
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Fixed Cost Per Unit Example Number of Local Calls Monthly Basic Telephone Bill per Local Call The average cost per local call decreases as more local calls are made.
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Cost Behavior Merchandisers Cost of Goods Sold Manufacturers Direct Materials, Direct Labor, and Variable Manufacturing Overhead Merchandisers and Manufacturers Sales commissions and shipping costs Service Organizations Supplies and travel Examples of variable costs
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Chapter_2 - Cost Behavior Fixed and Variable Costs Cost...

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