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MGT223H5 (26)
Minlei Ye (13)
Chapter 06

MGT223 Chapter06:Cost Behaviour Notes

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Department
Management
Course
MGT223H5
Professor
Minlei Ye
Semester
Fall

Description
MGT223 Chapter06: Cost Behaviour 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 2 types of fixed cost: - committed: long-term, can’t be significantly reduced in short term, ex. depreciation on equipment and real estate taxes - discretionary: may be altered in short term, ex. advertising and R&D Relevant Range: the range of activities within which the assumption about variable and fixed costs is valid Mixed Cost: contains both fixed and variable components, expressed as Y
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