ACC 406 Lecture Notes - Lecture 4: Cost Driver, Denim, Fixed Cost

• School: Ryerson University
• Department: Accounting
• Course: ACC 406
• Professor: Vincent Cappelli

Document Summary

Cost behaviour is the way costs change as the related activity changes. It represents the foundation on which managerial accounting is built, much like the critical role played by the theoretical pyramid in financial accounting. Cost driver is a causal measurement that causes cost to change. Relevant range is a range of output over which the assumed cost relationship is valid for the normal operations of a firm. Cost relationship considered is between supervision cost and the number of computers pro(cid:272)essed is (cid:272)alled (cid:862)output (cid:373)easure(cid:863) or (cid:862)dri(cid:448)er(cid:863) Total cost of supervision remains constant within this range, company pays for supervision regardless of whether it process 20000, 30000, 40000 or 50000 computers. However, even though total supervision cost remains unchanged more computers are processed, the unit cost does change as the level of output changes. Higher output means that the fixed costs can be spread over more units and thus are smaller per unit.