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10014_031010_18 - Chapter 5 Cost Behavior How does a cost...

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Chapter 5 – Cost Behavior - How does a cost react or change in relation to volume changed of cost driver or units of product? - Know the cost structure (VC, FC, Mixed) of your department, division, or company – relative proportion I. 3 Basic Costs by Behavior A. Variable Cost 1. Per unit cost remains the same as changes in activity occur 2. Total cost is proportional to the activity - Ex: COGS in merchandising - Prime costs: DLH, OH - VOH: indirect materials, supplied - Sales commissions B. Fixed Cost (Capacity costs) 1. Total cost remains the same as changes in activity occur 2. Unit cost is inversely related to changes in activity (increase in volume, decrease in unit cost) Two Types of FC 3. Committed costs: basic organizational structure. Investments in facilities, equipment, and professional salaried personnel - Long-term - Can’t significantly reduce without impairing the goals and profitability of company - Emphasis is utilization 4.
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