ACCT10001 Lecture Notes - Lecture 11: Contribution Margin, Variable Cost, Fixed Cost
27 Jul 2018
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Document Summary
Used as part of the budgeting and planning stage. Looks at the costs (variable/fixed) between profit and expenses. If seeking a specific rate of return (roe) Must make price more attractive compared to alternatives. Management must have an understanding of the relationships between: Distinction between fixed and variable costs is based on how the cost responds when there"s a change in the level of activity. Level of activity bound by maximum and minimum. Within which the relationships between revenue and expense are held constant. Behviours of cost assumed to stay the same within this range. Costs that remain constant despite changes in level of activity. Units sold doesn"t change the total fixed costs. Fixed costs per unit decline as level of activity increases. Costs per unit decreases with level of output. Costs that change in direct proportion to change in level of activity. Variable costs change because of level of output.
