Chapter 3 Notes

Chapter 3 Notes - VARIABLECOSTBEHAVIOR

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VARIABLE COST BEHAVIOR Many costs can be described as variable, fixed, or mixed. A variable cost  changes in total in proportion to changes in activity; a  variable cost is constant on a per-unit basis. EXAMPLE: Each bicycle requires one bicycle chain costing $8. Total Cost of Bicycle Chains Number of Bicycles Produced 100 $800 $8 per bicycle chain 0 0
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2 EXAMPLES OF COSTS THAT ARE NORMALLY VARIABLE WITH  RESPECT TO OUTPUT VOLUME Merchandising company Costs of goods (merchandise) sold Manufacturing company Direct materials Direct labor* Variable elements of manufacturing overhead: Indirect materials Lubricants Supplies Power Both merchandising and manufacturing companies Variable elements of selling and administrative costs: Commissions Shipping costs Service organizations Supplies, travel *Whether direct labor is fixed or variable will depend on the labor laws of  the country, custom, and the company’s employment contracts and  policies.
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A fixed cost  remains constant in total amount throughout wide ranges of  activity. EXAMPLE: Fashion photographer Lori Yang rents studio spaces in a  prestige location for $50,000 a year. She measures her company’s activity  in terms of the number of photo sessions. Cost
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This document was uploaded on 10/26/2011 for the course ACC 222 at Miami University.

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Chapter 3 Notes - VARIABLECOSTBEHAVIOR

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