Chapter%203%20Cost%20Behavior[1]

Chapter%203%20Cost%20Behavior[1] - 3 Chapter Cost Behavior:...

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3 Cost Behavior: Analysis and Use Chapter 3 Please pick up handout in back of room
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3 Introduction What is the nature of costs and how  are they used in decision making? Do they increase or decrease as  production volume changes? Do they remain stable?
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3 The Behavior of Fixed Costs Fixed Costs remain the same in total, but may vary per unit  when production volume changes. Examples: ???????? $ Total Fixed Costs Volume/Activity $ Fixed Cost Per Unit 10 4 25 50 2 75 1.33
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3 The Behavior of Variable  Costs Variable Costs vary in direct proportion to changes in  production volume, but are fixed when expressed as per- unit amounts. Examples: ????????? Volume/Activity $ Total Variable  Costs Volume/Activity $ Variable Cost Per Unit 25 50 50 100 75 150 25 50 75 20
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3 The Activity Base A measure of the event causing the incurrence of a variable cost – a cost driver
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3 The Activity Base A measure of the event causing the incurrence of a variable cost – a cost driver Machine hours Labor hours Units produced Miles driven
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3 Step Activity Cost Total cost remains constant within a narrow range of activity. Total cost increases to a new higher cost for the next higher range of activity.
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3 Activity Total Cost Relevant Range A straight line closely approximates a
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Chapter%203%20Cost%20Behavior[1] - 3 Chapter Cost Behavior:...

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