ACC 406 Chapter Notes - Chapter 3: Cost Driver, Fixed Cost, Variable Cost
1 Feb 2017
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Cost behaviour describes whether a cost changes when the level of activity changes. A (cid:272)ost that does(cid:374)"t (cid:272)ha(cid:374)ge i(cid:374) total as a(cid:272)ti(cid:448)it(cid:455) (cid:272)ha(cid:374)ges is a fixed cost. A variable cost increases in total with an increase in activity and vice versa. A cost driver is a casual measurement that causes costs to change. Identifying and managing cost drivers help managers better predict and control costs. I. e. if bdm wants to classify its product costs as either variable or fixed with respect to # of jeans produced, the # of jeans produced is the cost driver. The relevant range is the range of output over which an assumed cost relationship is valid for the normal operations of a firm. It limits the cost relationship to the range of operations that the firm normally expects to occur. They are costs that in total are consistent within the relevant range as the level of output increases or decreases.
