ACCT1501 Lecture Notes - Lecture 12: Contribution Margin, Cost Driver, Fixed Cost
Document Summary
Lo1: identify and give examples of fixed, mixed and variable costs. Essential for planning, control and decision making: costing, pricing, product mix, make or buy, performance evaluation, financial planning. Cost driver: definition a factor that causes (drives) activity costs, example: Costs can be classified as: fixed, variable, semi-fixed (step-variable, mixed (semi-variable) Insurance per year: cost function, y = a. Fixed cost per unit = ,000/10 = . If production = 100 units: fixed cost per unit = ,000/100 = . But total fixed costs = ,000 where y represents the total cost level and a is a constant. In total, vary proportionally with changes in activity level: remain the same on a per unit basis, examples: Variable costs = per unit: metres of fabric, 5% sales commission, /hour wage rate, cost function, y = b*x, if units = 10. Manufacturing: total vc = 10 x = .
