Chapter 6 Cost Behaior A Changes in Volume and Effect on Cost a Variable Cost in volume are costs that change in total in direct proportion to changes If units 0 Variable 0 i When volume goes up costs go up ii When volume goes down cost go down iii Variable cost Cost unit volume of units iv b Fixed Costs volume because of previous management decisions decisions i Committed Fixed Costs ii Discretionary Costs meaning that the costs are locked in annual costs due to current management are costs that do not change in total despite wide changes in iii Fixed Cost per Unit decreases as units increase are costs that change in total but not in dorect proportion to c Mixed Costs changes in volume i Mixed Costs Variable Costs Fixed Costs fixed costs over a small range of activity then jump to a new d Fixed Costs level of fixed costs with moderate changes in volume do not fit a pattern and are fluid e Curvilinear Costs B Managers Determine Cost Behavior a Account Analysis ledger account as a variable fixed or mixed costs managers use their judgement to classify each general b Scatter Plots are used to help estimate variable and mixed costs fits a mixed costs line through the highest and i High Low Method lowest volume data points 1 slope variable cost unit c Regression Analysis cost equation that best fits the data by using all of the data points is a statistical procedure for determining the line and i R R2 values find least squared regression C Contribution Margin Income Statement organizes cost by behavior rather than function a NOT GAAP approved b Contribution Margin is equal to sales revenue minus variable expense
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