Ch5 - TM5 AGENDA:COSTBEHAVIOR A. B. C. D. E. F. G. H....

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TM 5- AGENDA: COST BEHAVIOR A. Variable cost behavior. B. Types of fixed costs: committed and discretionary. C. Behavior of fixed costs in total and on a unit basis. D. Mixed costs (combination of fixed and variable). E. Scattergraph plot of a mixed cost. F. High-low method of mixed cost analysis. G. Least-squares regression method of mixed cost analysis. H. Contribution income statement.
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2 VARIABLE COST BEHAVIOR Many costs can be described as variable, fixed, or mixed. A variable cost  changes in total in proportion to changes in activity; a variable cost is constant on a  per-unit basis. EXAMPLE: Each bicycle requires one bicycle chain costing $8. Total Cost of Bicycle Chains Number of Bicycles Produced 100 $800 $8 per bicycle chain 0 0 EXAMPLES OF COSTS THAT ARE NORMALLY VARIABLE WITH RESPECT TO OUTPUT  VOLUME Merchandising company Costs of goods (merchandise) sold Manufacturing company Direct materials Direct labor* Variable elements of manufacturing overhead: Indirect materials Lubricants Supplies Power Both merchandising and manufacturing companies Variable elements of selling and administrative costs: Commissions Shipping costs Service organizations Supplies *Whether direct labor is fixed or variable will depend on the labor laws of the country, custom, and the  company’s employment contracts and policies.
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TM 5- FIXED COST BEHAVIOR A fixed cost  remains constant in total amount throughout wide ranges of activity. EXAMPLE: Fashion photographer Lori Yang rents studio spaces in a prestige location for $50,000  a year. She measures her company’s activity in terms of the number of photo sessions. Cost Number of Photo Sessions Cost of Studio Rental $50,000 500 1,000 FIXED COST BEHAVIOR-(continued) A fixed cost varies inversely with activity if expressed on a per unit basis. $0 $40 $80 $120 $160 $200 0 500 1,000 Number of Photo Sessions Average Cost Per Photo Session for Studio Rental
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4 TYPES OF FIXED COSTS Committed fixed costs  relate to investment in plant, equipment, and basic administrative structure.  It is difficult to reduce these fixed costs in the short-term. Examples include: Equipment depreciation. Real estate taxes.
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This note was uploaded on 02/28/2012 for the course ACCT 2361 taught by Professor Severance during the Spring '08 term at Texas State.

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Ch5 - TM5 AGENDA:COSTBEHAVIOR A. B. C. D. E. F. G. H....

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