WS3 - WS3 1 Knowledge of cost behaviour allows a manager to...

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WS3 1. Knowledge of cost behaviour allows a manager to assess changes in costs that result from changes in activity. This allows a manager to examine the effects of choices that change activity. For example, if excess capacity exists, bids that at least cover variable costs may be totally appropriate. Knowing what costs are variable and what costs are fixed can help a manager make better bids and, ultimately, better business decisions. 2. A driver is a factor that causes or leads to a change in a cost or activity; it is an output measure. The driver for general machine maintenance cost in a factory could be machine hours. The driver for raw materials used is the number of units produced. 3. The cost formula for monthly shipping cost is: Monthly shipping cost = $3,560 + $6.70 × (packages shipped) The independent variable is packages shipped. The dependent variable is monthly shipping cost. The fixed cost per month is $3,560. The variable rate is $6.70. 4. Some account categories are primarily fixed or variable. Even if the cost is mixed, either the fixed component or the variable component is relatively small. As a result, assigning all of the cost to either a fixed or variable category is unlikely to result in large errors. For example, depreciation on property, plant and equipment is largely fixed. The cost of telephone expense for the sales office,
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