COMM 112 Chapter Notes - Chapter 3: Cost Driver, Fixed Cost, Variable Cost
28 Feb 2013
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Cost behaviour: the general tern for describing whether cost changes when the level of output changes. A cost that doesn"t change as total output changes is a fixed cost. A cost that changes as output changes is a variable cost. Fixed and variable cost only exist when related to some output measure or drive. Cost driver measurement of the cause of the change in cost: predicting cost driver helps control costs better. The relevant range: the range of output over which the assumed cost relatoionship is valid for the normal operations of a firm. It limites the cost relationship to the range of operations that they firm normally expects to occur. Costs that in total are constant within the relevant range as the level of output increases/decreases. Ex: a fleet of airplanes are fixed costs for the airlines becayse the cost doesn"t change as the number of flight changes.
