Management and Organizational Studies 3370A/B Lecture Notes - Lecture 3: Income Statement, Contribution Margin, Longrun

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3370A/B
• Professor: Bill Dawson

Document Summary

How a cost will react or change as changes take place in the level of business activity. Managers who understand how costs behave are better able to predict what costs will be under operating circumstances. The relative proportion of fixed, variable and mixed costs found in an organization. Total dollar amount varies in direct proportion to changes in activity. Ex. if activity doubles so does dollar amount. The activity base: measure of whatever causes a variable cost to be incurred. Direct labor hours, machine hours, units produced and sold, kms driven, number of occupied hospital beds. Extent of variable costs: number and type of variable costs depend on org. structure and purpose. Curvilinear costs: costs that show a curved relationship between cost and activity rather than a straight-line relationship, relevant range, approximates curvilinear cost, range of activity within assumptions made about cost behavior are valid. Remain constant within the relevant range of activity.