MGT 5 Chapter Notes - Chapter 5: Fixed Cost, Variable Cost, Contribution Margin

• School: UCSD
• Department: Rady School of Management
• Course: MGT 5
• Professor: Wade Lindenberger

Document Summary

Lo 1: explain variable, fixed, and mixed costs and the relevant range. Cost behavior analysis: study of how specific costs respond to changes in the level of business activity. Variable costs: costs that vary in total directly and proportionately with changes in the activity level, remains the same per unit at every level of activity. Fixed costs: costs that remain the same in total regardless of changes in the activity level (property taxes, insurance, rent) Mixed costs: change in total but not proportionately with changes in the activity level. Lo 2: apply the high-low method to determine the components of mixed costs. Mixed costs must be classified into their fixed and variable elements. Lo 3: prepare a cvp income statement to determine contribution margin. The behavior of both costs and revenues is linear throughout the relevant range of the activity index. Costs can be classified accurately as either variable or fixed.