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Lecture 3

Week 3 - Ch. 3

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ACC 406
Alison Beavis

Ch 3 Cost BehaviourCost Behaviour The ways costs change as the related activity changesFixed Cost Does not change in total as the output changesVariable Cost Changes in total as output changesRelevant Range The range of outputs over which the assumed cost relationship is valid for the normal operations of a firm avoids extremely highlow levels of activityEx Production Manager is paid 32000 Factory produces 2050000 computers per year Of computers producedTotal cost of supervisionUnit Cost2000032000160300003200010740000320000805000032000064Discretionary Fixed Costs DFC vs Committed Fixed Costs CFCDiscretionary can be changed with relative ease at the discretion of managementCommitted can not be changed with ease ie a contractTotal Variable Cost VCVariable Rate x OutputsEx 40 VC per computer50000 computers40 x 500002000000Mixed Cost Cost that have both fixed and a variable componentTotal Cost TC Total FCTotal VCEx 10 sales reps each earns base salary of 30000 plus a commission of 25 for each unit they sellTC3000025xof units sold3000025 x 4000130000Step Costs a constant cost for a range of output then jumps to a new cost level for a different range
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