Fixed costs step for example assume office space is

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Unformatted text preview: l rate of $30,000 per year in increments of 1,000 square feet. Fixed costs would increase in a step fashion at a rate of $30,000 for each additional 1,000 square feet. 3-13 Fixed Costs and the Relevant Range How does this How step-function pattern differ from a step-variable cost? step-variable Step-variable costs can be adjusted more quickly as conditions change and . . . The width of the activity steps is much wider for the fixed cost. 3-14 Quick Check Quick Which of the following statements about cost behavior are true? a. Fixed costs per unit vary with the level of activity. b. Variable costs per unit are constant within the relevant range. c. Total fixed costs are constant within the relevant range. d. Total variable costs are constant within the relevant range. 3-15 Page 100, Questions 2, 3, 8 Page 101, Exercise 3-1 3-16 Mixed Costs (also called semivariable costs) A mixed cost contains both variable and fixed A mixed cost contains both variable and fixed elements. Consider the example of utility cost. elements. Consider the example of utility cost. Total Utility Cost Y tal To xed mi o st c Variable Cost per KW Activity (Kilowatt Hours) X Fixed Monthly Utility Charge 3-17 Mixed Costs Mixed Total Utility Cost Y tal To xed mi ost c Variable Cost per KW Activity (Kilowatt Hours) X Fixed Monthly Utility Charge 3-18 Mixed Costs – An Example If your fixed monthly utility charge is $40, your If variable cost is $0.03 per kilowatt hour, and your monthly activity level is 2,000 kilowatt hours, what is the amount of your utility bill? the 3-19 Analysis of Mixed Costs Account Analysis and the Engineering Approach IIn account analysis,, each account is In account analysis each account is n account each In account each classified as either variable or fixed based classified as either variable or fixed based classified classified on the analyst’s knowledge of how on the analyst’s knowledge of how on on the account behaves. tthe account behaves. the he The engineering approach classifies The engineering approach classifies The engineering The engineering costs based upon an industrial costs based upon an industrial engineer’s evaluation of production engineer’s evaluation of production methods, and material, labor and methods, and material, labor and overhead requirements. overhead requirements. overhead overhead 3-20 Use a scattergraph plot to diagnose cost behavior. 3-21 The Scattergraph Method Plot the data points on a graph Plot the data points on a graph ((Total Cost Y vs. Activity X). Total Cost Y vs. Activity X). Maintenance Cost 1,000’s of Dollars Y 20 ** ** 10 0 * ** * ** 0 1 2 3 Patient-days in 1,000’s 4 X 3-22 The Scattergraph Method Maintenance Cost 1,000’s of Dollars Draw a line through the data points with about an Draw a line through the data points with about an equal numbers of points above and below the line. equal numbers of points above and below the line. Y 20 ** ** 10 0 * ** * ** 0 1 2 3 Patient-days in 1,000’s 4 X...
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This note was uploaded on 09/19/2013 for the course FIN 201 taught by Professor Coe during the Fall '10 term at Quinnipiac.

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