ch4M_sp11 - BCOR 2000 Chapter 4M Cost Behavior: Analysis...

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Unformatted text preview: BCOR 2000 Chapter 4M Cost Behavior: Analysis and Use Cost Behavior: Analysis and Use Variable Costs True Variable Costs: Costs that vary in direct proportion to level of production activity Ex: Direct Materials, sales commissions Dollar Sales Total Commission Variable Costs Step-Variable Costs: Costs of a resource obtainable only in large chunks Production line supervisor (new line), instructor salary at CU Volume Cost Relevant Range A straight line closely approximates a curvilinear variable cost line within relevant range. A straight line closely approximates a curvilinear variable cost line within relevant range. Activity Total Cost Economists Curvilinear Cost Function Linearity Assumption and the Relevant Range Accountants Straight-Line Approximation (constant unit variable cost) Fixed Costs Remain constant within relevant range Average fixed cost per unit gets smaller as the level of activity increases Caution: Expressing FC on per unit basis implies that costs are variable For internal reporting purposes, report FC in total amounts (not per unit) Trend toward fixed costs as automated processes For planning purposes, fixed costs can be viewed as Committed or Discretionary E.g., Advertising, R&D, PR, Mgmt Devel., Internships E.g., Advertising, R&D, PR, Mgmt Devel., Internships E.g., Depr., Insurance, R/E Taxes,Top Mgmt and Operating Personnel Salaries E.g., Depr., Insurance, R/E Taxes,Top Mgmt and Operating Personnel Salaries Types of Fixed Costs Discretionary...
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This note was uploaded on 10/29/2011 for the course BCOR 2000 taught by Professor Brush during the Spring '07 term at Colorado.

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ch4M_sp11 - BCOR 2000 Chapter 4M Cost Behavior: Analysis...

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