A merchandising company usually will have a high high

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Unformatted text preview: ill have a high 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 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 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 $$ Average FCs per unit decrease as the activity level increases. The FC FC per local call decreases as more local calls are made. Number of Local Calls 11 Types of Fixed Costs Committed Discretionary Long-term, cannot be significantly reduced in the short term. May be altered in the short-term by current managerial decisions Examples Examples Depreciation on Equipment and Real Estate Taxes Advertising and Research and Development 12 Total Cost $$ The Linearity Assumption and the Relevant Range Relevant Range Activity 13 Prepare an Income Statement Using Using the CM Format Revenue Less: VC CM Total $ 100,000 60, 000 $ 40,000 Less: FC Net Income Unit $ 50 30 $ 20 30,000 $ 10,000 The CM format emphasizes cost behavior. CM CM covers FCs and provides for Net Income. 14 Uses o...
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