Accounting 3m
Committed fixed cost examples
1.depreciation of buildings/equipment 2.real estate taxes 3.insurance expenses 4.salaries of top management
Discretionary fixed costs examples
1.include advertising 2.research 3.public relations 4.management development programs 5.internships for students
Variable cost
Change in cost/Change in activity
Contribution margin
amount remaining from sales revenues after variable expenses have been deducted, contributes toward covering fixed expenses and then toward profits for the period
Mixed cost
contains both variable and fixed cost elements Y = a + bX
fixed costs
costs per unit becomes progressively smaller as the level of activity increases
Discretionary fixed costs
costs that are locked in for a short term
Committed fixed costs
costs that remain largely unchanged in the short term and are locked in for years to come
Contribution approach
distinguishes between fixed and variable costs
Activity base
is a measure of what ever causes the incurrence of variable cost, aka cost driver
Relevant Range
is the range of activity in which assumptions about cost behavior are reasonably valid
Step Variable Costs
obtained in large chunks, inc/dec in response to fairly wide changes in activity
True Variable Costs
proportionately variable cost
Cost structure
the relative proportion of each type of cost in an organization is known as its ___________________