budget-sec8-Cost Behavior_2

budget-sec8-Cost Behavior_2 - Cost Behavior: William J....

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Cost Behavior : William J. Ward, Jr., MBA ± William J. Ward, Jr., MBA Johns Hopkins University 2 Managing Cost Behavior ± Fixed costs ± Hold constant regardless of volume ± Variable costs ± Rise and fall along with volume ± Semi-variable ± Fixed over a range of volume, then vary sharply, then ±xed again ± “Step costs”
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Cost Behavior : William J. Ward, Jr., MBA ± 3 Semi-Variable Costs 01 0 1 20 30 2 3 4 Important Cost Concepts ± Three ways to describe the cost of a service 1. Average cost 2. Marginal cost 3. Standard cost ± Each provides a diFerent answer ± Each has a diFerent purpose
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Cost Behavior : William J. Ward, Jr., MBA ± 5 Average Cost ± The cost of producing a single unit of output ± Total cost of services divided by the total number of services provided ± Provides an overall approximation of the cost per unit of service 6 Determining Average Cost ± Fixed costs $1,000,000 ± Variable cost $ 200,000 ± Total cost $1,200,000 ± Volume of services 20,000 visits ± Average cost per visit = $60
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Cost Behavior : William J. Ward, Jr., MBA ± 7 Marginal Cost ±
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budget-sec8-Cost Behavior_2 - Cost Behavior: William J....

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