ACCT 2102 Lecture Notes - Lecture 24: Fixed Cost, Variable Cost, Scatter Plot

• School: University of Georgia
• Department: Accounting
• Course: ACCT 2102
• Professor: Farmer

Document Summary

In previous chapters, we have focused on the functional categorization of costs: product costs and period costs. This functional categorization tells managers how costs are used in the company. In order to use costs for decision-making purposes, managers need to understand the behavioral categorization of costs. In this chapter, we will discuss three basic forms of cost behavior and the methods used by managers to determine cost behavior. Once we understand cost behavior, we can estimate how changes in activity levels affect a company"s total costs. Total variable costs are directly proportional to changes in activity level. As the activity level increases, so do the total variable costs. As the activity level decreases, so do the total variable costs. Variable costs do not change on a per unit basis. Unit fixed costs are indirectly proportional to changes in activity level. As the activity level increases, the unit fixed cost decreases. As the activity level decreases, the unit fixed cost increases.