ACCT 2550 Chapter Notes - Chapter 3: Contribution Margin, Income Statement, Fixed Cost
4 Oct 2016
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Document Summary
The relative proportion of each type of cost present in a firm determines its cost structure. Fixed costs: the amount of fixed costs computed on a per-unit basis becomes progressively smaller as the level of activity increases. Types of fixed costs: committed fixed costs relate to the investment in facilities, equipment, and the basic organizational structure of a firm (ex. Depreciation on buildings and equipment: discretionary fixed costs usually arise from annual decisions by management to spend in certain areas (ex. Advertising and research and development: discretionary is short-term and committed is long-term. Mixed costs: contains both variable and fixed cost elements, total mixed cost = total fixed cost + variable cost per unit of activity * level of activity, y = a + bx. In account analysis, each account under consideration is classified as either variable or fixed on the basis of the analyst"s knowledge of how the account behaves.
