ch5 - Managerial Accounting Chapter Five - Cost Behavior...

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Managerial Accounting Chapter Five - Cost Behavior
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Chapter Five - Highlights What are the common types of variable costs? How to variable costs change as activity levels change? What is relevant range? What happens to a fixed cost as activity levels change? How can we use cost formulas to predict costs? How do we analyze a mixed cost? Let’s look at a contribution format of Income Statement
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Cost Patterns To be able to identify cost patterns is critical to the success of any operation To identify cost patterns must thoroughly understand how costs are affected by activities and product levels
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Summary of Variable and Fixed Cost Behaviour Cost In Total Per Unit Variable Total variable cost is Variable cost per unit remains proportional to the activity the same over wide ranges level within the relevant range. of activity. Fixed Total fixed cost remains the Fixed cost per unit goes same even when the activity down as activity level goes up. level changes within the relevant range. Cost Patterns - Review
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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 minute talked is constant. For example, 10 cents per minute.
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Variable Costs All variable costs must have an activity base Activity base/Cost driver = what causes the incurrance of the variable cost Examples: units produced, machine hours, team members
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0 10 20 30 40 50 60 Planes No of Worker s Defn: cost that is obtainable only in large chunks that increase or decrease to fairly wide changes in
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ch5 - Managerial Accounting Chapter Five - Cost Behavior...

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