Ch4 Slides.pdf - 3-lCost Behavior:Analysis and UseChapter...

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Unformatted text preview: 3-lCost Behavior:Analysis and UseChapter FourTypes of Cost Behavior PatternsRecall the summary of our cost behaviordiscussion from an earlier chapter.Summary of Varieble and Fixed Cost BehaviorCosn T6blPe, UniiVa riableTotE I variable cod ispropodionrl b the activitlevelwithln the releEnt rangeFiredLearning Objective 1The Activity BaseA measure of whatcauses theincurrence of avariable costTrue Variable Gcst ExampleA variable cost is a cost whose total dollar amountvaries in direct proportion to changes in the activitylevel. Your total long distance telephone bill isbased on how many minutes you talk.ooO=iim6eoO.EooJ -19EPoFTypes of Cost Behavior PatternsRecall the summary of our cost behaviordiscussion from an earlier chapter.Summary of Variable and Fixed Cost BehaviorCadVa dableToblvariable cosi isproportional to ihe activittJevel within the relevant rangoVariable cosl per uDit remainsthe *me over wide Gf,gesof activify,Fired3-ZExtent of Variable CostsThe proportion of variable costs dlffers acrossorganizations. For example .Examples of Variable CostsTrue Variable CostDirect materials is a true or proportionately vadablecost because the amount used during a period willvary in direct proportion to the level of productionactivityVolumeStep-Variable CostsSmall changes in the level of production arenot likely to have any effect on the numberof maintenance workercVolumeVariable Gost Per Unit ExamPleA variable cost remains constant if expressed ona per unit basis. The cost per minute talked isconstant. For example, 10 cents per minuteMinutes TalkedStep-Variable CostsA resource that is obtainable only in large chunks (suchas maintenance workers) and whose costs increase ordecrease only in response to fairly wide changes inactivity is known as a step-variable costVolume) --)Step-Variable CostsVolumer'l t \'.<\4\, :.!YThe Linearity Assumption and the Relevant RangeRelevantEconomist'sCurvilinear CostFunctionao(-)doFAccountant's Straight-LineApproximation (constantunit variable cost)ActivityTypes of Cost Behavior PatternsLet's look at fixed cost behavior on the nextscreens.Summary of Variable and Fixed Cost BehaviorCd$ln lotaIVa ria bteTobl variaue cod i3pppo.tioml to lhe aclivityleEl wilhin the releEnt 6ngeVariable cod p€r unil remainsthe sme owr wide Engesof aclivily,FixedTobl fixed cod remains thesme even when the activitylevel changes within lherelevant EngeTotal Fixed Gost ExampleA fixed cost is a cost whose total dollar amount remainsconstant as the activity level changes Your monthlybasic telephone bill is probably fixed and does notchange when you make more local calls.o=o(Dfie>otroo;=l:Number of Local CallsTypes of Gost Behavior PatternsRecall the summary of our cost behavior...
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Ch4 Slides.pdf - 3-lCost Behavior:Analysis and UseChapter...

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