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Lecture 4

ADM2304 Lecture 4: 4
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Department
Administration
Course
ADM2304
Professor
Tony Quon
Semester
Fall

Description
e.g, Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant e.g, Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant. Chapter 3: Cost behaviour analysis and use: True Variable Cost > A variable cost is a cost whose total dollar amount varies in direct proportion to changes in the activity level. e.g, Your total long distance telephone bill is based on how many minutes you talk. Variable Cost Per Unit > A variable cost remains constant if expressed on a per unit basis. The cost per minute talked is constant. e.g, 10 cents per minute Extent of Variable Costs: > The proportion of variable costs differs across organizations e.g, A public utility with large investments in equipment will tend to have fewer variable costs. Examples of Variable Costs:>
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