Chapter 5 - CHAPTER 5 Notes Cost Behavior Analysis and Use...

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CHAPTER 5 Notes Cost Behavior: Analysis and Use Compiled by: Lei Wang, CPA Certain materials used with permission of J. Fergusson and of McGraw-Hill Companies, Inc. Chapter  5 expands  on  the  material  that we  covered  back  in Chapter  1 on   cost  classifications  for predicting  cost  behavior.   This  is important   becaus e  m anagers  who  understand  how  costs  behave  are  better  able  to  predict  costs  and  make  decisions  under  various  circumstanc e s.      Variable Costs In Total Per Unit Total variable  cost  increas e s  and  decrea s e s  in  direct proportion to changes in activity . Variable  cost  per  unit is constant . Activity Base  (also  called  a  cost driver ) – a measure  of what  cause s  the  incurrence  of variable  costs.   Units produced  (or  sold)   is not  the  only  activity base  within companies.    The  extent  of variable  costs   differs  across  organizations.
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ACCT 226 – Chapter 5 Page 2 of 10 Com m on  examples  of variable  costs  (see  Exhibit 5-2). True Variable versus Step-Variable Costs True Variable Costs   -  the  amount  used  during  the  period  varies  in  direct proportion  to the  activity level. Step-Variable Costs   -  a resource  that is obtainable  only  in  large chunks  and  whose  costs  change  only  in respons e  to fairly wide   changes  in activity. True Variable Step-Variable Fixed Costs In Total Per Unit
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ACCT 226 – Chapter 5 Page 3 of 10 Total fixed  cost  is  not affected by  chang e s  in activity (i.e.,  total  fixed  cost  remains  constant  even   if activity change s ). Fixed  cost  per  unit 
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This note was uploaded on 02/14/2011 for the course ACCT 226 taught by Professor Smith during the Spring '10 term at South Carolina.

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Chapter 5 - CHAPTER 5 Notes Cost Behavior Analysis and Use...

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