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 ___________________