ECON
Chapter 02s

# Number of texts sent cost per text sent 2 13 fixed

• Notes
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Number of Texts Sent Cost Per Text Sent

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2-13 Fixed Cost Your monthly contract fee for your cell phone is fixed for the number of monthly minutes in your contract. The monthly contract fee does not change based on the number of calls you make. Number of Minutes Used Monthly Cell Phone Contract Fee
2-14 Fixed Cost Per Unit Within the monthly contract allotment, the average fixed cost per cell phone call made decreases as more calls are made. Number of Minutes Used Within Monthly Plan Monthly Cell Phone Contract Fee

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2-15 Examples Advertising and Research and Development Examples Depreciation on Buildings and Equipment and Real Estate Taxes Types of Fixed Costs Discretionary May be altered in the short-term by current managerial decisions Committed Long-term, cannot be significantly reduced in the short term.
2-16 Rent Cost in Thousands  of Dollars  0            1,000            2,000            3,000                    Rented Area (Square Feet) 0 30 60 Fixed Costs and the Relevant  Range 90 Relevant Range The relevant range of activity for a fixed cost is the range of activity over which the graph of the cost is flat.

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2-17 Fixed Costs and the Relevant  Range Fixed costs would increase in a step fashion at a rate of \$30,000 for each additional 1,000 square feet. For example, assume office space is available at a rental rate of \$30,000 per year in increments of 1,000 square feet.
2-18 Cost Classifications for Predicting  Cost Behavior Behavior of Cost (within the relevant range) Cost In Total Per Unit Variable Total variable cost Increase Variable cost per unit and decrease in proportion remains constant. to changes in the activity level. Fixed Total fixed cost is not affected Fixed cost per unit decreases by changes in the activity as the activity level rises and level within the relevant range. increases as the activity level falls.

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2-19 Quick Check  ü Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.) A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.
2-20 Fixed Monthly Utility Charge Variable  Cost per KW Activity (Kilowatt Hours)  Total Utility Cost X Y A mixed cost contains both variable and fixed elements. Consider the example of utility cost. Mixed Costs (also called semivariable costs)  Total mixed cost

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2-21 Plot the data points on a graph (Total Cost Y vs. Activity X ).
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• Fall '12
• StephenD.Joyce

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