Chapter 6 - Cost Behaviour - Chapter Six MGT223 Cost...

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Unformatted text preview: Chapter Six MGT223 Cost Behaviour: Analysis and Use Learning Objective 1 Describe how fixed and Describe how fixed and variable costs behave and variable costs behave and how to use them to predict how to use them to predict costs. costs. Summary of Variable and Fixed Cost Behavior Cost In Total Per Unit Variable Total variable cost is Variable cost per unit remains proportional to the activity the same over wide ranges level within the relevant range. of activity. Total fixed cost remains the same even when the activity Fixed cost per unit goes Fixed level changes within the down as activity level goes up. relevant range. Recall the summary of our cost behaviour Recall the summary of our cost behaviour discussion from an earlier chapter. discussion from an earlier chapter. Types of Cost Behaviour Patterns The Activity Base A measure of what causes the incurrence of a variable cost A measure of what causes the incurrence of a variable cost Units produced Units produced Miles driven Miles driven Summary of Variable and Fixed Cost Behavior Cost In Total Per Unit Variable Total variable cost is Variable cost per unit remains proportional to the activity the same over wide ranges level within the relevant range. of activity. Total fixed cost remains the same even when the activity Fixed cost per unit goes Fixed level changes within the down as activity level goes up. relevant range. Recall the summary of our cost behaviour Recall the summary of our cost behaviour discussion from an earlier chapter. discussion from an earlier chapter. Types of Cost Behaviour Patterns Minutes Talked P e r M i n u t e T e l e p h o n e C h a r g e Variable Cost Per Unit Example A variable cost remains constant if expressed on a per unit basis. The cost per minute talked is constant. For example, 10 cents per minute. Examples of Variable Costs 1. Merchandising companies – cost of goods sold....
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Chapter 6 - Cost Behaviour - Chapter Six MGT223 Cost...

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