Ch. 3 HW Solutions

Ch. 3 HW Solutions - CHAPTER 3 ACTIVITY COST BEHAVIOR...

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CHAPTER 3 ACTIVITY COST BEHAVIOR QUESTIONS FOR WRITING AND DISCUSSION 1. Knowledge of cost behavior allows a man- ager to assess changes in costs that result from changes in activity. This allows a man- ager to assess the effects of choices that change activity. For example, if excess ca- pacity exists, bids that at least cover vari- able costs may be totally appropriate. Know- ing what costs are variable and what costs are fixed can help a manager make better bids. 2. The longer the time period, the more likely that a cost will be variable. The short run is a period of time for which at least one cost is fixed. In the long run, all costs are vari- able. 6. Committed fixed costs are those incurred for the acquisition of long-term activity capacity and are not subject to change in the short run. Annual resource expenditure is inde- pendent of actual usage. For example, the cost of a factory building is a committed fixed cost. Discretionary fixed costs are those incurred for the acquisition of short- term activity capacity, the levels of which can be altered quickly. In the short run, re- source expenditure is also independent of actual activity usage. An engineer’s salary is an example of such an expenditure. 7. A variable cost increases in direct proportion to changes in activity usage. A one-unit in- crease in activity usage produces an in- crease in cost. A step cost, however, in-
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Ch. 3 HW Solutions - CHAPTER 3 ACTIVITY COST BEHAVIOR...

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