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ACC 406 Chapter 3: Chapter 3

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pearsquirrel474
6 Feb 2012
School
Ryerson University
Department
Accounting
Course
ACC 406
Professor
Vincent Cappelli

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Document Summary

Cost behaviour: general term to describe whether a cost changes when the level o f output changes. Fixed cost: a cost that does not change in total as output changes. Variable cost: increases in total with an increase in output and decreases with a decrease in output. Driver: a causal factor that measures the output of the activity that leads (or causes) costs to change. Determine underlying business activity and figure out how it causes cos t to change (ex. Relevant range: is the range of output over which the assumed cost relationship is valid for the normal operations of the firm. Are costs that in total are constant within the relevant range as the level of output increases/decreases. Discretionary fixed costs: are fixed costs that can be changed or avoided relati vely easily at management decision. Cost that do not depend on the driver (ex. Commited fixed costs: fixed costs that cannot be easily changed.

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Related Questions

Why is it important to identify the most appropriate costdrivers for a particular product?

A) so managers can identify the activities necessary tomanufacture a product

B) so managers can control product costs better

C) so managers can predict product costs better and make betterdecisions

D) B and C

Answer:

Cost drivers are ________.

A) the different functions in the value chain

B) different types of functional areas in the firm

C) measures of activities that require the use of resources andthereby cause costs

D) different types of cost calculations

Answer:

Within the relevant range, the total amount of ________ costchanges in direct proportion to changes in the cost driver. Withinthe relevant range, the total amount of ________ cost does notchange in direct proportion to changes in the cost driver.

A) fixed; variable

B) variable; fixed

C) step; mixed

D) mixed; step

Answer:

What happens when the cost-driver level increases within therelevant range?

A) Total fixed costs remain unchanged.

B) Fixed costs per unit of cost driver increase.

C) Total variable costs decrease.

D) Variable costs per unit of cost driver increase.

Answer:

Which of the following costs is a fixed cost?

A) cost of dairy ingredients used to produce ice cream

B) depreciation expense on factory building

C) fuel used by delivery trucks

D) labor wages of workers who mix dairy ingredients to make icecream

a variable cost function represents a cost that increases in total as the level of the cost driver increases. The amount by which the cost increases as the cost driver increases by one is the slope coefficient, represented by “b” in the equation for a cost function. How does the fixed cost behave within the relevant range?

Distinctions between fixed and variable costs are important. Asactivity increases, total variable costs increase, but fixed costsremain the same. This is accurate within the relevant range.Activity changes outside the relevant range can result in increasesin either fixed or variable costs. Describe how an aviation firmdistinguishes between fixed and variable costs. Provide specificexamples. In addition, explain whether fixed cost items or variablecost items get any priority in your firm’s internal decisions todistribute available funds.