ch02.pdf - Chapter 2 Understanding Cost Behavior 1 Lecture...

This preview shows page 1 - 4 out of 9 pages.

1 1 Chapter 2 Understanding Cost Behavior 2 Lecture Outline Understanding cost behavior costs are caused by resources time horizon effects: short term vs long term Variable, fixed, and mixed costs
Image of page 1

Subscribe to view the full document.

2 3 Cost Behavior: Why do we care? To make decisions, we need to predict profit = revenue − costs in various scenarios => need to understand how costs behave what causes costs? how do costs change with our decisions? 4 Understanding Cost Behavior: General Idea 1. Costs are caused by resources costs in $ physical resources rent staff salaries hourly wages depreciation production materials office building, factory building production machines, office equipment sales managers, production supervisors, maintenance staff production workers’ hours materials and components used in production
Image of page 2
3 5 Understanding Cost Behavior: General Idea 2. To understand how costs will change, think about the underlying resource adjustments You are planning to increase production by 10% next week. This is a temporary increase. (1) To implement this change, will you adjust the following resources? (2) Based on your answers in (1), will the following costs increase? (1) Physical resource adjustment (2) Costs in $ Move to a larger factory building? YES NO factory rent YES NO Buy additional production equipment? YES NO depreciation YES NO Hire additional production supervisors and other skilled staff? YES NO staff salaries YES NO Increase assembly workers’ total hours? YES NO wages YES NO Use more materials and components in production? YES NO materials YES NO 6 Time Horizon: Short Term vs Long Term You are planning to increase production by 10%.
Image of page 3

Subscribe to view the full document.

Image of page 4
  • Spring '10
  • GARY

{[ snackBarMessage ]}

Get FREE access by uploading your study materials

Upload your study materials now and get free access to over 25 million documents.

Upload now for FREE access Or pay now for instant access
Christopher Reinemann
"Before using Course Hero my grade was at 78%. By the end of the semester my grade was at 90%. I could not have done it without all the class material I found."
— Christopher R., University of Rhode Island '15, Course Hero Intern

Ask a question for free

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern