ACCT 2550 Chapter Notes - Chapter 2: Fixed Cost

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True variable vs. step-variable costs **don"t need to know** True variable costs vary in direct proportion to changes in the level of activity. Step-variable costs increase or decrease only in response to more than a unit change in the activity level. The linearity assumption and relevant range **don"t need to know** Long-term, cannot be reduced in the short term. May be altered in the short term by current managerial decisions. Increase in salaried knowledge workers who are difficult to train and replace. Implications: managers are more locked in with fewer decision alternatives, planning becomes more crucial because fixed costs are difficult to change with current operating decisions. Office space is available at a rental rate of ,000 per year in increments of 1,000 square meters. As the business grows more space is rented, increasing the total cost. Step-variable costs can be adjusted more quickly.

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