ADM2341 Chapter 6 Cost Behaviour

Total variable costs are constant within total

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Unformatted text preview: LO 1 6-27 Mixed Costs A mixed cost has both fixed and variable A mixed cost has both fixed and variable components. Consider the example of utility cost. components. Consider the example of utility cost. Total Utility Cost Y dc ixe m al t To st o Variable Cost per KW Activity (Kilowatt Hours) X Fixed Monthly Utility Charge LO 1 6-28 Mixed Costs Total Utility Cost Y dc ixe m al t To st o Variable Cost per KW Activity (Kilowatt Hours) X Fixed Monthly Utility Charge LO 1 6-29 Mixed Costs 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? what Y = a + bX Y = $40 + ($0.03 × 2,000) Y = $100 LO 1 6-30 Analysis of Mixed Costs Account Analysis and the Engineering Approach Each account is classified as either Each account is classified as either variable or fixed based on the analyst’s variable or fixed based on the analyst’s knowledge of how the account behaves. knowledge of how the account behaves. Cost estimates are based on an Cost estimates are based on an Cost Cost evaluation of productio...
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