MGT 45 Chapter 11

The Contribution Margin divides ______ costs from _______ costs. It covers the _______ costs and, depending on whether or not the ______ costs were higher, it provides for income. This emphasizes cost behavior.

1. fixed 2. variable 3. fixed 4. variable

Fixed cost behavior for Total Fixed Costs and Fixed Cost Per Unit when there is increased activity? Decreased activity? (Assume you want to break even.)

Increased activity: total fixed costs remain constant while fixed cost per unit decreases. Decreased activity: total fixed costs still remain constant while fixed cost per unit increases. (Phone bill example.) In summary, for fixed costs, total costs remain constant while costs per unit change INVERSELY relative to activity level.

Variable cost behavior for Total Variable Costs and Variable Cost Per Unit when there is increased activity? Decreased activity? (Assume you want to break even.)

Increased activity: total variable costs increase proportionately. while variable cost per unit remains constant. Decreased activity: total variable costs decrease proportionately while variable cost per unit still remains constant. (Phone bill example.) In summary, for variable costs, total costs change in DIRECT PROPORTION relative to activity level while costs per unit remain constant.

Some costs have both fixed and variable components. These are known as _____ costs or ________ costs. Examples of what may be included as fixed costs for a total mixed cost are monthly fees, salaries, depreciation. Examples of variable costs for a total mixed cost would be relative to the service and may include supplies, gas, deliveries, maintenance, bonus.

mixed or semivariable