AFM102 Lecture Notes - Lecture 5: Fixed Cost, Variable Cost, Income Statement

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM102
• Professor: Jie Joyce Tian

Document Summary

Different behaviours of fixed cost vs variable cost. High-low method - based on the activity. Find difference in cost and difference in activity to get the estimation (b) In some situations it"s better than high-low, others it"s not. Number of units produced is always proportionate to the number of units produced. Calculate for december: 140,000 * 1. 3 = ,000. Maintenance: ,200 - 120,000 - 182,000 = 181,000. Total cost function: y = 150,000 + 2. 38x. Total cost is the same under both methods. **number of units produced = number of units sold** Contribution margin: the amount remaining from sales after all variable costs have been deducted. Sales - total variable expenses = contribution margin - total fixed expenses = Cvp considers how income is affected by: If not enough, then you have a loss. The level of sales at which profit = 0. How many units you need to produce and sell. Easiest way to calculate is use contribution margin.