Unformatted text preview: ill have a high
proportion of VCs,
like cost of sales.
7 Examples of Variable Costs
1. Merchandising companies – cost of goods sold.
2. Manufacturing companies – direct materials,
direct labor, and variable overhead.
3. Merchandising and manufacturing companies –
commissions, shipping costs, and clerical costs,
such as invoicing.
4. Service companies – supplies, travel, and
clerical. 8 Total Cost $$ Step-Variable Costs Volume
9 Total Fixed Costs Example Total Phone Bill $$ A FC is a cost whose total dollar amount remains constant as the
activity level changes. Suppose your monthly phone bill is fixed
and does not change, no matter how many calls you make. Number of Calls
10 FC Per Unit Example Phone Charge per Call $$ Average FCs per unit decrease as the activity level increases. The
FC per local call decreases as more local calls are made. Number of Local Calls 11 Types of Fixed Costs Committed Discretionary Long-term, cannot be
in the short term. May be altered in the
short-term by current
managerial decisions Examples Examples Depreciation on
Real Estate Taxes Advertising and
12 Total Cost $$ The Linearity Assumption
and the Relevant Range Relevant
13 Prepare an Income Statement
Using the CM Format
$ 40,000 Less: FC
Net Income Unit
$ 20 30,000
$ 10,000 The CM format emphasizes cost behavior. CM
covers FCs and provides for Net Income.
14 Uses o...
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- Spring '08
- Cost Accounting, VC Per Unit Example