ACC 406 Lecture Notes - Lecture 2: Cost Driver, Management Accounting, Fixed Cost
Document Summary
Cost behaviour is the general term to describe whether a cost changes when the level of activity changes. A fixed cost is a cost that does not change in total as activity changes. A variable cost increases in total with an increase in activity and decreases in total with a decrease in activity. A cost driver is a key determinant of cost behaviour. A cost driver is a casual measurement that causes costs to change. A cost is fixed or variable with respect to some output measure or cost driver. First we determine the underlying business activity and ask ourselves, what causes the cost of this particular activity to go up or down? . Suppose that bluedenim company wants to classify its product costs as either variable or fixed with respect to the number of jeans produced. Clearly, the use of raw materials (denim, thread, zippers, and buttons) varies with the number of jeans produced.