MALNBREWERCH3 - COSTS VARIABLE COSTS Cost Activity Change...

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COSTS VARIABLE COSTS Cost Activity Change in direct proportion to changes in activity. ‘Constant’ per unit. Typical variable costs Cost of goods sold Prime Cost Variable portion of manufacturing overhead Commissions Shipping Costs
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FIXED COSTS Cost Activity Fixed costs remain constant over a wide range of activity Per unit fixed costs vary with activity Committed fixed costs relate to investments in property plant and equipment such as amortization, property taxes, salaries of key operating personnel. Discretionary fixed costs arise from periodic decisions by management to spend on items like advertising, research etcc. In business there is a trend towards increased fixed costs relative to variable costs. This is due to automation of business processes and a trend towards salaried workers rather than hourly wage workers.\
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MIXED COSTS A mixed cost contains elements of both variable and fixed costs. Utility bills have fixed and variable components. Rentals of equipment like photocopiers have fixed and variable components. Cost Variable Cost element Fixed Cost element Activity In order to utilized the concept of cost behaviour in decision making information it is necessary to separate mixed costs into estimated fixed and variable components. A mixed cost reflects the equation for a straight line Y= a + bx where ‘a’ is the fixed cost intercept and ‘b’ is the slope of the line tied to activity.
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MALNBREWERCH3 - COSTS VARIABLE COSTS Cost Activity Change...

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