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Chapter 9 Summary A brief summary of Chapter 9 from the Accounting for Non-Financial Managers.

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York University
Administrative Studies
ADMS 1500
Marcela Porporato

P a g e | 1 Cost Behaviour: describes the relationship between cost & different activity levels – variable, fixed, and mixed. - Variable costs: one that is positively correlated with activity (raw materials used in manufacturing plant, wages of production workers, & production overhead for example) o Variable cost relationship: more activity that is planned, the greater the amount of variable costs planned; cost per unit is constant, but as # of units increases, total cost increases as well - Fixed costs: constant at all predetermined activities (eg: rent, heating, property tax, & management salaries); are still incurred as expense - Mixed costs: costs that do not fall into either category because they are made up of a fixed element and a variable element (electricity, cars) The Break-Even Model: relationship between costs & revenues to determine the operating income at any level of activity; useful planning & decision support tool - Contribution margin: difference between selling price & variable cost; measures how much better off the company is as a result of the sale of one additional unit - Break-Even Point: contribution used to pay for business’s fixed costs; fixed cost for a given period of time divided by contribution margin per unit; indicates how many units need to be sold in that period to reach the break-even point - Activity Above Break-Even Point: every unit sold above break-even point, contribution margin is pure profit; the greater the number sold, higher the profit becomes - Using the Break-Even Model to Analyze Changes: used to evaluate wide range of decisions Product Costing: - Unit-variable costs: change with the number of units sold or produced - Business-sustaining costs: cost of head-office operations, expenses of the board of directors, and the other sales/production activities - Cost behaviour and cost allocation fail results to products to cost too much or too little - Activity based costing: batch level costs & product-sustaining costs o Batch-level costs: number of times that a batch is run; may be a production run or may be the
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