ACTG 2020 Study Guide - Break Even, Contribution Margin, Earnings Before Interest And Taxes

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2 Mar 2014
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All managerial decisions deal with choices among different activity levels. Managers must estimate which costs will vary with the activity & by how much. Costs that do not change in total as the level of business activity changes. An example of a fixed cost is the insurance on a factory building. The insurance cost doesn"t change as the level of production changes. Fixed cost per unit: average fixed costs per unit decrease as the activity level increases. The fixed cost per local call decreases as more local calls are made. Costs that change in total as the level of business activity changes. An example of a variable cost is salesperson commissions. Units sold o on a per unit basis. The basic cost equation is: total cost = fixed cost + variable cost. This graph shows the ccombination of a fixed cost line and a variable cost line.

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