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ACC 406 (130)
Chapter 3

Chapter 3

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Department
Accounting
Course
ACC 406
Professor
Maurizio Di Maio
Semester
Winter

Description
Chapter 3Cost Behaviour Basics of cost behavior y Cost behavior is the general term for describing whethera cost changes when the level of output changes o A cost that does not changein total as output changes is a fixed cost o A cost that changes in total as output changes is a variable costMeasures of output and the relevant range y Cost driver is a measurement that causes costs to changeo Identifyingmanaging cost drivers helps managers better predictcontrol costs ex on pg 77 y Relevant range is the range of output over which the assumed cost relationship is valid for the normal operations of a firm ex on pg 77Fixed costs y Fixed costs r costs that in total r constant within the relevant range even if the level of output increases or decreases ex on pg 77 y Fixed costs can change but that does not make them variable if it changes they r fixed at a new higher or lower rate y Fixed costs r difficult to change quickly that is why they r considered fixed y 2 types of fixed costs r commonly recognized Exhibit 31 o Discretionary fixed costs r fixed costs that can be changed or avoided relatively easily at management decision ex on pg 79 o Committed fixed costs r fixed costs that cannot be easily changed normally involves a longterm contract ex on pg 79 Variable costs y Variable costs r costs that in total vary if there is an increase in output then total increasesif there is decrease in output then total decreases ex on pg 7980 y Variable cost equation o Total variable costsvariable rate x amount of output y Exhibit 32Exhibit 33 shows the difference btwn variablefixed costAre realworld cost relationships linear y Ex on pg 8182 Mixed costsstep costs
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