BUS 108 Lecture Notes - Lecture 2: Fixed Cost, Management Consulting, Variable Cost
Document Summary
Cost terms, concepts, and classifications: cost classifications to describe cost behavior (vc, fc, mc) Managers often need to be able to predict how costs will change in response to changes in activity (such as the output of goods or services, # of machine hours, or # of purchase orders). A simple way to describe cost behavior is the variable, fixed, and mixed cost classifications. A variable cost is constant per unit of activity but changes in total as the activity level rises and falls. It changes in direct proportion to changes in the activity level. The cost of materials is a good example of variable costs. A fixed cost is constant in total for any activity level within the relevant range of activity. But fixed cost per unit of activity is inversely related to the activity level. In other words, fixed cost per unit decreases when activity rises and increases when activity falls.
