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BMGT221 Chapter 6 Review

# BMGT221 Chapter 6 Review - BMGT221 A G Pfeiffer Chapter 6 1...

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BMGT221 G. Pfeiffer Chapter 6 A. Cost Behavior: How do Changes in Volume Affect Cost? o Cost Behavior – how costs change as volume changes o 3 most common cost behaviors: a. Variable Costs b. Fixed Costs c. Mixed Costs Variable Costs o Costs that change in total in direct proportion to changes in volume o Total Variable Cost Graph a. Always begins at the origin Origin – represents zero volume and zero cost b. Slope is the variable cost per unit of activity c. The Higher the Variable Cost per Unit of Activity ( v ) the steeper the slope of the line v remains constant in each graph o Cost Equations can be used to express how a cost behaves o Total Variable Cost ( y ) = Variable Cost per Unit of Activity ( v ) x Volume of Activity ( x ) a. y=vx Fixed Costs o Costs that do not change in total despite wide ranges in volume a. Fixed Costs per unit of activity vary inversely with changes in volume o Committed Fixed Costs – costs that are “locked in” because of previous management decisions o Discretionary Fixed Costs  – costs that are a result of annual management decisions a. Companies have more control over discretionary fixed costs because they can be adjusted in the short run o Total Fixed Cost Graph a. Always flat lines b. No slope that intersects the y -axis at a level equal to total fixed costs o Total Fixed Cost ( y ) = Fixed Amount Over a Period of Time ( f ) Mixed Costs o Costs that change in total but NOT in direct proportion to changes in volume o Total Fixed Cost ( y ) = Total Variable Cost ( vx

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BMGT221 Chapter 6 Review - BMGT221 A G Pfeiffer Chapter 6 1...

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