BU247 Chapter Notes - Chapter 2: Cost Driver, Fixed Cost, Variable Cost

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Managers compare actual results for budget period w expectations that were reflected in the budget to asses how well the org did compared to expectations. Cost that changes in direct proportion to changes in the activity level of some variable. Called cost driver: method by which indirect costs are assigned to cost objects (i. e. products, departments/customers) Variable cost = (variable cost / unit of cost driver) (cost driver units) Cost does(cid:374)"t (cid:448)ary i(cid:374) the short ru(cid:374) (cid:449) a spe(cid:272)ifi(cid:272) a(cid:272)ti(cid:448)ity. Defining characteristic = depends on the amount of resource that is acquired rather than amount used. Total cost = variable cost + fixed cost. Cost volume profit analysis (cvp) uses concepts of variable and fixed costs to identify the profit associated w various levels of activity. Contribution margin = difference bw total revenue & total variable costs. Contribution margin per unit = contribution each unit makes to covering fixed costs and providing profit.

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