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ADM2341 Chapter 6 Cost Behaviour

A manufacturing company will often have many variable

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Unformatted text preview: le costs. A service company will normally have a high proportion of variable costs. A merchandising company usually will have a high proportion of variable costs, like cost of sales. LO 1 6-9 Examples of Variable Costs 1. Merchandising companies – cost of goods sold. 2. Manufacturing companies – direct materials, direct labour, and variable overhead. 3. Merchandising and manufacturing companies – commissions, shipping costs, and clerical costs, such as invoicing. 4. Service companies – supplies, travel, and clerical. LO 1 6-10 True Variable Cost Cost Direct materials is a true or proportionately variable cost because the amount used during a period will vary in direct proportion to the level of production activity. Volume LO 1 6-11 Step-Variable Costs Cost A resource that is obtainable only in large chunks (such as maintenance workers) and whose costs increase or decrease only in response to fairly wide changes in activity is known as a step-variable cost. step-variable Volume LO 1 6-12 Step-Variable Costs Cost...
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