# ch02 - CHAPTER 2 AN INTRODUCTION TO COST TERMS AND PURPOSES...

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CHAPTER 2 AN INTRODUCTION TO COST TERMS AND PURPOSES 2-1 A cost object is anything for which a separate measurement of costs is desired. Examples include a product, a service, a project, a customer, a brand category, an activity, and a department. 2-20 (15–20 min.) Classification of costs, manufacturing sector. Cost object: Type of car assembled (Corolla or Geo Prism) Cost variability: With respect to changes in the number of cars assembled There may be some debate over classifications of individual items, especially with regard to cost variability. Cost Item D or I V or F A D V B I F C D F D D F E D V F I V G D V H I F 2-22 (15–20 min.) Variable costs and fixed costs. 1. Variable cost per ton of beach sand mined Subcontractor \$ 80 per ton Government tax 50 per ton Total \$130 per ton Fixed costs per month 0 to 100 tons of capacity per day = \$150,000 101 to 200 tons of capacity per day = \$300,000 201 to 300 tons of capacity per day = \$450,000 2. \$450,000 \$300,000 \$150,000 100 200 300 Tons of Cap acity p er Day \$975,000 \$650,000 \$325,000 2,500 5,000 7,500 Tons Mined 2-1

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The concept of relevant range is potentially relevant for both graphs. However, the question does not place restrictions on the unit variable costs. The relevant range for the total fixed costs is from 0 to 100 tons; 101 to 200 tons; 201 to 300 tons, and so on. Within these ranges, the total fixed costs do not change in total.
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