ACC 117 Lecture Notes - Lecture 5: Management Accounting, Cost Driver, Variable Cost

• School: Tunxis Community College
• Department: Accounting
• Course: ACC 117
• Professor: Muccino

Document Summary

Cost behaviour: the foundation which managerial accounting is built. General term to describe if costs change when activity changes. Costs can be variable fixed or mixed. Knowing how costs change with output is essential to planning controlling and decision making. Cost drivers: fixed and variable costs only have meaning when related to some output measure. A cost driver is a causal factor that measures the output activity that leads costs to change. Cost driver is key determinant to cost behaviour. Fixed costs are those that intotal are fixed within the relevant range, but unit fixed costs increase as output decreases. Even though cost may change this does not make them variable. They are simply fixed at a higher or lower rate. Fixed costs that can be changed or avoided relatively easy at managements discretion. Fixed costs that can not be easily changed, usually involve a long term contract.