Ch. 3 - Chapter3 Cost Behavior 1. Basics of Cost Behavior...

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Chapter 3 Cost Behavior 1. Basics of Cost Behavior 1) Cost behavior describes how a cost behaves or changes as the amount of output changes. 2) Relevant range is the range over which the cost relationships are expected to be valid for the normal operations of the firm. 3) Variable costs are costs that in total vary in direct proportion to changes in output within the relevant range. 4) Fixed costs are costs that in total are constant within the relevant range as the level of output increases or decreases. 5) Committed fixed costs are those incurred for the acquisition of long-term activity capacity and are not subject to change in the short run. Annual resource expenditure is independent of actual usage. 6) Discretionary fixed costs are those incurred for the acquisition of short-term activity capacity , the levels of which can be altered quickly . 7) A driver is a factor that causes or leads to a change in a cost or activity; it is an output measure. e.g. machine hours, number of units produced. Three cost behavior patterns are summarized below: Examples: factory rent direct materials lease payment of $1,000 per month plus $10 per machine hour used Per unit: changes as activity level changes remains constant per unit of activity Formula:
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This note was uploaded on 01/14/2012 for the course ACCT 2203 taught by Professor Staff during the Spring '08 term at Oklahoma State.

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Ch. 3 - Chapter3 Cost Behavior 1. Basics of Cost Behavior...

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