ACC 406 Lecture Notes - Lecture 2: Fixed Cost, Cost Driver, Variable Cost

• School: Ryerson University
• Department: Accounting
• Course: ACC 406
• Professor: Anthony Chan

Document Summary

Cost behaviour: the relationship between cost and activity volume. A variable cost increases in total when there is an increase in activity and decreases when activity decreases: total variable costs= variable rate per unit x amount of output. Mixed costs: have both fixed and variable components: i. e. sales representatives are often paid a salary plus commission on sales. Total cost = total fixed cost + total variable cost. Accounting methods to break down total cost into 2 elements: X -activity volume (measured by a cost driver) independent. Step 1: identify high point and low point in the sample only look at x dimension. Step 2: estimate variable cost per unit(v) and total fixed cost(f) Fh or l= yh or l - (v)(x) Cost formula: y= 625 + (6. 875)(x: scatter graph method (i. e. scatterplot method, visual fit method) Based on observation and want to draw a line on the graph.