MA_Chapter3

# MA_Chapter3 - ACTG 1P11 MA CHAPTER 3 Cost Behaviour...

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ACTG 1P11 – MA CHAPTER 3 A. Cost Behaviour a. Costs can be described as variable, fixed and mixed - Variable – cost total changes in proportion to the change in activity o VC is constant on a per-unit basis - When a variable cost is graphed, it will be a straight upward sloping line starting at the origin (0,0). EXAMPLE: Each bicycle requires one bicycle chain costing \$8. (Variable cost is constant on a per-unit basis at \$8. Total variable cost when 100 bicycles are produced is equal to \$8 *100=\$800.) - Fixed – remains constant in total dollar amount through wide ranges of activity - FC decreases on a per-unit basis as the activity level increases - When graphed, a fixed cost is a straight flat (180°) line that does not start at the origin. EXAMPLE: Fashion photographer Lori Yang rents studio spaces in a prestige location for \$50,000 a year. She measures her firm’s activity in terms of the number of photo sessions. How would you graph the cost of studio rental in relation to firm activity? -

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## This note was uploaded on 11/04/2011 for the course ACTG 1P11 taught by Professor Nchasse during the Fall '11 term at Brock University.

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MA_Chapter3 - ACTG 1P11 MA CHAPTER 3 Cost Behaviour...

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