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Chapter6.docx

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Department
Administrative Studies
Course
ADMS 2510
Professor
Alison Beavis
Semester
Winter

Description
Chapter6 Cost structure- The relative proportion of fixed, variable, and mixed costs found in an organization. Activity base- A measure of whatever causes the incurrence of a variable cost. For example, the total cost of X- ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is an activity base for explaining the total cost of X-ray film. (a.k.a cost driver) Step-Variable cost- A cost (such as the cost of a maintenance worker) that is obtainable only in large chunks and that increases and decreases only in response to fairly wide changes in the activity level. Curvilinear costs-A relationship between cost and activity that is a curve rather than a straight line.  The relevant range is that range of activity within which the assumptions made about cost behavior are valid. Committed fixed costs-Those fixed costs that are difficult to adjust and that relate to the investment in facilities, equipment, and the basic organizational structure of a firm. Discretionary fixed costs- Those fixed costs that arise from annual decisions by management to spend in certain fixed cost areas, such as advertising and research.  Key difference between committed and discretionary fixed costs are: discretionary is for short term and can be cut without much impact on the organization.  In summary, we cannot provide a clear-cut answer to the question “Is labour a variable or fixed cost?”  The fixed portion of a mixed cost represents the basic minimum cost of just having a service ready
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