Cost Behavior
CHAPTER 6
COST BEHAVIOR TYPES OF COST BEHAVIOR PATTERNS
1. Variable Cost
2. Fixed Cost
3. Mixed / Semi-variable Cost
Cost Structure – the relative proportion of fixed, variable, and mixed costs found within an organization or firm.
1. Variable Cost - its total dollar amount varies in direct proportion to changes in the activity level. Example: Number of Trucks Radiator Cost per Total Radiator Produced Truck Cost 250 $ 30 $ 7,500 500 30 15,000 750 30 22,500 1,000 30 30,000
Activity Base – a measure of whatever causes the incurrence of variable cost.
- sometimes referred to as cost driver. Most Common Activity Bases: a. machine hours b. units produced c. units sold
• Extent of Variable Costs
The number and type of variable costs present in an organization will depend in large part on the organization’s structure and purpose.
Exhibit 6-2
Examples of Costs that are normally Variable with respect to Volume Type of Organization Variable Costs Merchandising Company Cost of Goods (merchandise) sold Manufacturing Company
COST BEHAVIOR TYPES OF COST BEHAVIOR PATTERNS
1. Variable Cost
2. Fixed Cost
3. Mixed / Semi-variable Cost
Cost Structure – the relative proportion of fixed, variable, and mixed costs found within an organization or firm.
1. Variable Cost - its total dollar amount varies in direct proportion to changes in the activity level. Example: Number of Trucks Radiator Cost per Total Radiator Produced Truck Cost 250 $ 30 $ 7,500 500 30 15,000 750 30 22,500 1,000 30 30,000
Activity Base – a measure of whatever causes the incurrence of variable cost.
- sometimes referred to as cost driver. Most Common Activity Bases: a. machine hours b. units produced c. units sold
• Extent of Variable Costs
The number and type of variable costs present in an organization will depend in large part on the organization’s structure and purpose.
Exhibit 6-2
Examples of Costs that are normally Variable with respect to Volume Type of Organization Variable Costs Merchandising Company Cost of Goods (merchandise) sold Manufacturing Company