Unformatted text preview: n flexible (dynamic) budgeting activities.
For use in standard costing, in particular, MOH variance
For use in determining Manufacturing Overhead (MOH)
For use in litigating or defending a wide variety of costrelated legal issues:
– Federal antitrust cases - predatory pricing.
– Alleged contractual violations.
– Measurements of damages for lost sales/profits/etc. IES-Tomkins College 8 Common Types Of Cost Behavior FIXED COSTS: Costs that fundamentally are
not driven by changes in volume.
Y = Total Cost
Y = a, where a is the amount of fixed cost
Common examples of fixed costs - Depreciation,
Property taxes, Supervisor salaries
Property IES-Tomkins College 9 Common Types Of Cost Behavior
Common VARIABLE COSTS: Costs that change directly
and proportionately with the volume of activity.
Y = bX, where b is the slope of the line (the
increase in cost relating to the increase in volume)
and X is the measure of the volume of activity.
Common examples of variable costs - Direct
materials, Direct Labor, Sales Commissions
materials, IES-Tomkins College 10 Common Types Of Cost Behavior
MIXED COSTS: Costs that contain both a
fixed and a variable component.
fixed Y = a + bX, Where a equals the fixed
component and bX is the variable
component. Common examples of mixed costs - Some
lease agreements, some utility costs, many
IES-Tomkins College 11 Common Types Of Cost Behavior
Common SEMI-VARIABLE COSTS: Costs that change
but not proportionately with the volume of
Learning curve costs - are costs that increase at a
decreasing rate with the volume of activity.
When graphed, learning curve costs slope upward
and to the right but not in a straight line; Instead
they curve downward.
they IES-Tomkins College 12 Common Types Of Cost Behavior
SEMI-FIXED COSTS: Costs that
increase in steps or jumps. Also called set function costs Some argue that all fixed costs are step
function costs over the long run
function IES-Tomkins College 13 Cost Behavior Assumptions
Cost Relevant Range: Cost behavior estimates are
usually based on historical cost observations and
analyses. If cost behavior characteristics are
View Full Document