Notes Chapter 5

Notes Chapter 5 - Notes Chapter 5: Cost Behavior Analysis...

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Notes Chapter 5: Cost Behavior Analysis and Use I. Types of Cost Behavior Patterns a. Cost structure: the relative proportion of each type of cost in an organization a.i. Variable costs: cost whose total dollar amount varies in direct proportion to changes in the activity level. a.i.1. Activity base: a measure of whatever causes the incurrence of variable cost; also known as a “cost driver” a.i.1.a. True Variable: amount used during a period will vary in direct proportion to the level of production activity; can be stored as inventory and carried over a.i.1.b. Step-Variable : the cost of a resource that is obtainable only in large chunks and that increases or decreases only in response to fairly wide changes in activity a.i.2. Relevant range: that range of activity within which the assumptions made about cost behavior are reasonably valid. a.ii. Fixed Costs: remain constant within the relevant range of activity a.ii.1. Committed: investments in facilities, equipment, and the abasic organization that can’t be significantly reduced even for a
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Notes Chapter 5 - Notes Chapter 5: Cost Behavior Analysis...

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