Handout_Ch._5__1__BUS_121

Handout_Ch._5__1__BUS_121 - BUS 121 - Managerial Accounting...

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BUS 121 - Managerial Accounting Chapter 5: Cost Behavior – Analysis and Use I. Types of Cost Behavior Patterns A. Variable Costs: A cost whose total dollar amount varies in direct proportion to changes in the activity level. Remember though, on a per-unit basis, a true variable cost will remain constant. 1. For a cost to be variable, it must vary with respect to some activity base or cost driver . An activity base is a measure of whatever causes the incurrence of a variable cost. Some examples are units produced, machine hours used, units sold. 2. Variable costs can be true variable costs or step variable costs. Step variable costs increase fairly abruptly but often along a range of activity. However, over a large change in activity, the cost behavior averages out to be a rather smooth linear variable cost. 3. Many variable costs actually behave in a curvilinear fashion. However, within a limited or relevant range , the cost function is nearly linear – a smooth variable cost. B.
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This note was uploaded on 06/26/2009 for the course ACC 400 taught by Professor Kim during the Summer '08 term at Grossmont.

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