Cost TerminologyFixed Costs•They are constant or unchanging regardless of the level of output or activity•e.g. Costs for factory floor space stays the same regardless of the production quantity, number of employees, and the level of work-in-process.Variable Costs•They vary with the level of output or activity•e.g. Labor costs since they depend on the number of employeesTotal Costs•Total cost = Total fixed cost + Total variable cost
Cost TerminologyMarginal Cost•The variable cost for one more unit•Used to decide whether the additional unit should be made, purchased, or enrolled in.Average Cost•The total cost divided by the number of units•Used to attain an overall cost picture of the investment on a per unit basis.
Cost TerminologyRecurring and Nonrecurring CostsRecurring Costs•Costs referring to any expense that is known, anticipated, and occurs at regular intervals.•Modeled as cash flows that occur at regular intervals.Nonrecurring Costs•One-of-a-kind expenses that occur at irregular intervals.•Difficult to plan for or anticipate from a budgeting perspective, both in terms of timing and size.•You don’t need to worry about paying them again and again.•e.g. fire or theft losses, installing a new machine, emergency maintenance expenses, moving expenses.