AFM123 Chapter Notes - Chapter 3: Contribution Margin, Variable Cost, Income Statement
27 Mar 2016
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Chapter 3 cost behaviour: analysis and use. Along with variable and ixed costs, there is also mixed costs : all three are found in most organizations. Relative proportion of each type determines its cost cost structure . The idea that a variable cost is constant per unit, but varies in total with the activity level, is crucial to understand cost behaviour patterns. The activity base: a measure of whatever causes the incurrence of variable cost (also referred to as cost driver ) Can be output based (volume of goods or services sold, number of customers served, number of patients, etc. ), or input based (direct labour hours, machine hours, number of customer services calls, and kg of raw materials used) Costs that vary in direct proportion to charged in the level of activity: cost of direct materials is a true variable cost. Cost that increases or decreases only in response to more than a unit change in the activity level.
