B Chapter 16

B Chapter 16 - BChapter16 TheBehaviorofCosts :ExampleP 476...

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B Chapter 16 The Behavior of Costs Relation of Costs to Volume: Example P.   476 Variable Costs-vary in total, directly and  proportionally with volume Fixed Costs-In total do not vary with  volume Semivariable Costs-A combination of V  and F Unit costs will  decrease  as volume  increases (Up to a Point) Relevant Range : When total costs  increase along a line (P. 478) within a  certain range of operating volume. Outside

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this range, costs may exhibit a different  relationship (Reduced volume, some fixed  costs may be avoided: Increased volume  may lead to a second shift with increased  costs. Given a long enough time period, all costs  can become variable; in the short run  (Usually one year) some costs are variable  while others are fixed Sticky Costs -Fall less with decreases in  volume or activity or rise with increases in  volume or activity I.e. add employees as  volume increases, but do not release as  quickly [Germany makes it expensive to  release an employee] P. 480
P.  481-Step Functon Cost Cost-Volume Relationship : TC = TFC + (UVC*X) From a marketing perspective break even  analysis is important. As part of this  analysis, an understanding of cost  behaviors is needed. Remember fixed costs  are fixed in dollar amounts, but vary by the  number of units. I.e. if FC = \$100, this figure

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