AFM102January242011

# AFM102January242011 - Introduction to Management Accounting...

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Click to edit Master subtitle style 5/11/11 © Anthony Atkinson Introduction to Management Accounting January 24, 2011 Introduction to Cost Behaviour 11

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5/11/11 © Anthony Atkinson Key Topics in Today’s Class Cost behaviour Variable Cost Fixed Cost Mixed Cost Step Cost Cost classification Direct Cost Indirect Cost 22
5/11/11 © Anthony Atkinson Variable Cost A variable cost is one that increases proportionally with changes in the activity level of some variable. A variable cost is associated with a consumable resource . 33

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5/11/11 © Anthony Atkinson Variable Cost – Example For example, the activity of making a chair in a furniture factory consumes the wood that goes into the chairs. The acquisition and consumption of the wood creates a cost for wood that increases proportionately with the number of chairs made. Because there are many possible types of variables, for convenience, a 44
5/11/11 © Anthony Atkinson Variable Cost Formula Therefore, the variable cost formula is Variable cost = Variable cost per unit of the cost driver * Cost driver units Note that the convention is to use variable cost to refer to the total variable cost and variable cost per 55

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© Anthony Atkinson A Variable Cost Example The Rose Furniture Company manufactures a single product—a rocking chair. The cost of the wood used to make each rocking chair is \$25. 66
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## This note was uploaded on 05/11/2011 for the course AFM 102 taught by Professor R.ducharme during the Spring '09 term at Waterloo.

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AFM102January242011 - Introduction to Management Accounting...

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