MGT223H5 Chapter Notes - Chapter 06: Fixed Cost, Variable Cost
Document Summary
Cost driver under activity base is a measure of what causes the incurrence of a variable cost, ex. units produced, machine hours, labour hours, miles driven. Variable cost: in total, varies in direct proportion to changes in the level of activity, but it is constant if expressed on a par unit basis. True variable cost: direct material is a true or proportionately variable cost because the amount used during a period will vary in direct proportion to the level of production activity. Step-variable cost: resource that is obtainable only in large chunks (ex, maintenance workers) and whose costs increase or decrease only in response to fairly wide changes in activity. Fixed cost: is constant, in total, regardless of changes in activities within the relevant range, fixed cost per unit react inversely to the number of activities. Committed: long-term, can"t be significantly reduced in short term, ex. depreciation on equipment and real estate taxes.
