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ADM2341 Chapter 6 Cost Behaviour

Fixed cost per unit goes down as activity level goes

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Unformatted text preview: Unit Example Monthly Basic Telephone Bill per Local Call Average fixed costs per unit decrease as the activity level increases. The fixed cost per local call decreases as more local calls are made. Number of Local Calls LO 1 6-19 Types of Fixed Costs Committed Committed Discretionary Discretionary Long-term, cannot be Long-term, cannot be significantly reduced significantly reduced iin the short term n the short term May be altered in the May be altered in the short-term by current short-term by current managerial decisions managerial decisions Examples Examples Examples Depreciation on Equipment and Real Estate Taxes Advertising and Advertising and Research and Research and Development Development LO 1 6-20 The Trend Toward Fixed Costs The trend in many industries is toward greater fixed costs relative to variable costs. As machines take over As machines take over many mundane tasks many mundane tasks previously performed previously performed by humans, by humans, by by “knowledge workers” “knowledge workers” are demanded for are demanded for their minds rather their minds rather than their muscles. than their muscles. Knowledge workers Knowledge workers tend to be salaried, tend to be salaried...
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