Managerial Accounting

Discretionary Fixed Costs

Fixed costs that can be changed or avoided relatively easy at management discretion. *Ex. Advertising

Committed Fixed Costs

Fixed costs that cannot be easily changed. *Ex. Involves a long-term contract, leasing of machinery or warehouse, purchase of property, plant, and equipment.

Variable Cost

Increases in total with an increase in output and decreases in total with a decrease in output.

Independent Variable

Is a variable that measures output and explains changes in the cost or other dependent variable.

High-Low Method

The fixed cost is the intercept of the total cost line and that the variable rate is the slope of the line. Step 1: find the variable rate Step 2: Calculate the fixed cost using the variable rate and either the high point or low point. Fixed Cost= Total Cost at High Point - (Variable Rate * Output at High point) or Fixed Cost= Total Cost at Low Point - (Variable Rate * Output at Low Point Total Cost= FC + (VR * output activity)

Relevant Range

The range of output over which the assumed cost relationship is valid for the normal operations of a firm.

Total variable cost

Variable rate * units of output

Dependent Variable

Variable whose value depends on the value of another variable.

Intercept

corresponds to fixed cost.

Slope

corresponds to the variable rate (the variable cost per unit of output)

Mixed Costs

costs that have both a fixed and a variable component. *Ex. Repairs and Maintenance

A fixed cost within the relevant range

does not change in total as output changes.

Which of the following would not be an example of a fixed cost?

glue used to put together tables.

Variable Rate

high point cost-low point cost/ high point output-low point output

Total Cost

total fixed cost + (variable rate * units of output)

If at a given volume total costs and fixed costs are known, the variable costs per unit may be computed as follows:

(total costs - fixed costs)/unit volume

Fixed cost

A cost that does not change in total as output changes. In total, are constant within the relevant range as the level of output increases or decreases. In total- pay attention to this While the total cost of supervision remains unchanged as more computers are process, the unit cost does change as the level of output changes.