Variable costs cost is proportional to activity

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Variable costs- cost is proportional to activity volume Fixed cost- does not change w/ activity volume Mixed cost- cost that contain both fixed and variable Product costs- costs related to getting products or services ready for sale Period cost- all costs that are not product costs, when products are finished Merchandising firms- buy goods from suppliers and then resell them to customers Direct materials- materials and components that become part of the product (are easily traced and are variable) Direct labor- physical labor that converts materials and components into finished products (a variable cost) Manufacturer overhead- cost of shared resources that cannot be traced directly to a certain product, or its not practical to trace them (can be fixed, variable or mixed) SG&A can be fixed mixed or variable
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A GAAP income statement combines fixed and variable and controllable and non controllable Cannot use traditional income statements to decide volume. Must be in CM CM separates fixed from variable. Good for evaluating short term decisions
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