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Managerial Acct 19 to 21

Managerial Acct 19 to 21 - Chapter 19 Cost Behavior and...

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___________________________________________________________ _____________________________________ Chapter 19 Cost Behavior and Cost - Volume - Profit Analysis ___________________________________________________________ _____________________________________ 1. Cost Behavior: refers to the manner in which a cost changes as a related activity changes. It has two factors: Activity Bases / Activity Drivers: We must identify the activities that are thought to relate to the cost incurred. Relevant Range: We must specify the range of activity over which the changes in the cost are of interest. 2. Variable Costs: Costs where the total dollar amount vary in proportion to changes in the level of activity. Unit costs remain constant with changes in the activity level. Example: Direct Materials, Direct Labor Costs, Fuel, wages, Sales Commissions, Electricity expense Graph: Unit Variable Cost Remains Constant Total Variable Cost Increase as Total Units Produced increase // Total Direct materials Cost increase 3. Fixed Costs: Costs that remain the same in total dollar amount as the level of activity changes. Unit costs vary with activity level changes. Example: Salaries, Depreciation, Property Insurance, Property Taxes Graph: Total Fixed Cost remains the same as the number of bottles produced chanages, Fixed cost per bottle changes 4. Mixed Costs: Cost that has characteristics of both variable and fixed costs, for analysis mixed costs are separated into their fixed and variable components. Example: Quality ontrol Department Salaries, Purchasing Cepartment Salaries, maintenance expenses, Warehouse expenses High-Low Method: uses the highest and lowest activity levels and their related costs to estimate the variable cost per unit and the fixed cost component of mixed costs. Variable Cosing/ Direct Costing: One method of reporting variable and fixed costs. Under this only variable costing, only the variable manufacturing costs (DM, DL and Variable Factory Overhead) are included in the product cost . Fixed factory overhead is an expense of the
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period in which it is incurred. 5. Cost-Volume-Profit Relationships: Systemic examination of the relationships among selling prices, sales and production volume, costs, expenses, and profits. For these analysis costs are separated into the Variable and Fixed categories.
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