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ACIS 2116 Chapter 4 Slides

ACIS 2116 Chapter 4 Slides - ACIS 2116 Chapter Four Cost...

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ACIS 2116 Chapter Four Cost Behavior and Relevant Costs
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2 Cost Behavior What happens to certain costs as the number of units produced changes? Variable Costs Fixed Costs Step Costs Mixed Costs
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3 Variable Cost Total dollar amount _____ in ____ proportion to changes in the activity level. Remains ______ on a per unit basis.
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4 Number of Hokie Bird Suits Produced Total Cost of Hokie Bird Suits True Variable Cost Example
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5 Number of Hokie Bird Suits Produced Cost of a Hokie Bird Suit Variable Cost Per Unit Example Variable cost remains ________ on a per unit basis.
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6 Examples of Variable Costs 1. Merchandising companies – cost of goods sold. 2. Manufacturing companies – _____ materials, ______ labor, and variable overhead.
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7 Relevant Range A straight line closely approximates a curvilinear variable cost line within the relevant range. Activity Total Cost Economist’s Curvilinear Cost Function The Linearity Assumption and the Relevant Range Accountant’s Straight-Line Approximation (constant unit variable cost)
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8 Relevant Range _______ range of production for particular product and company
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9 Total dollar amount remains ________ as the activity level changes within the relevant range. Fixed Cost
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10 Number of Hokie Bird Suits Manufactured Rent paid for Factory Building Total Fixed Cost Example
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11 Number of Hokie Bird Suits Manufactured Rental Cost per Hokie Bird Suit Fixed Cost Per Unit Example Average fixed costs per unit ________ as the activity level increases.
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12 Fixed Costs and Relevant Range The relevant range of activity for a fixed cost is the range of activity over which the graph of the cost is _____.
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13 Rent Cost in Thousands of Dollars 0 1,000 2,000 3,000 Rented Area (Square Feet) 0 30 60 Fixed Costs and Relevant Range 90 Relevant Range Total cost doesn’t change for a wide range of activity, and then jumps to a new higher cost for the next higher range of activity.
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14 The Trend Toward Fixed Costs The trend in many industries is toward ______ fixed costs relative to variable costs. Why? Increased automation. Shift from laborers paid by the hour to salaried knowledge workers.
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15 Is Labor a Variable or a Fixed Cost?
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