AFM102 Lecture Notes - Lecture 4: Fixed Cost, Variable Cost

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM102
• Professor: Jie Joyce Tian

Document Summary

Fixed in a particular range, step in increments. Ex. salaried staff, space rental, delivery truck. 1 truck for 0-1000 items, 2 trucks for 1000-2000 items, 3 trucks for 2000-3000 items, etc. A = fixed cost, b = per unit variable cost. Variable cost - same proportions (bx/x = b) Mixed cost - (a + bx/x = a/x + b) Pinpoint two data points: highest activity level (rightmost data point) and lowest activity level (leftmost data point) Use b with either the highest or lowest data point to calculated fixed cost component. Northern lights inns have a total of 2000 rooms. On average, 70% of them are occupied each day. On average, operating costs per room per day are (30 day months). This contains both variable and fixed cost elements. During october, the occupancy rate dropped to 45%. A total of ,000 of operating cost was incurred during oct. Estimate variable cost per occupied room per day.