ACCT 2102 1st Edition Lecture 17 Outline of Last Lecture I Ruffle s Department 2 Example II Important Notes Outline of Current Lecture III Cost Behavior IV Example of Cost Behavior V Conceptual Aspects Current Lecture Cost Behavior Chapter 6 III Cost Behavior how our costs act when we change activity levels 3 basic forms of cost behavior Variable gym membership example if you pay by the class then each time you go you pay the same amount total changes depending on occurrence Fixed if you pay by the month then the per occurrence amount changes depending on the amount of times you go however cost is fixed cost because you pay the same amount whether you go once or thirty times Mixed combining both fixed and variable you go bowling and pay for shoe rental fixed cost however your game fee increases as you bowl more game IV Example of Cost Behavior I m planning a for my parent s wedding anniversary The banquet hall will cost 400 to rent for the evening and can hold up to 250 people Dinner will cost 10 per guest in attendance I want to estimate my costs under 2 scenarios either 50 guests or 100 guests attend Fixed Identify the cost behavior for the following cost categories Venue Cost fixed cost because it s 400 whether 5 people or 50 people show up Food Cost variable cost depending on number of people who show up Venue Food Cost mixed cost If 50 guests attend what are the total expected costs 10 person 50 400 900 These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute If 100 guests attend 10 person 100 400 1400 Price per person goes down as more people come because the cost for the venue is spread among more people What if I expect 300 people to come Need to find a difference venue What if this was an event people had to pay to attend and I wanted to break even on the event What would I need to charge per person 900 50 18 person V Let s look at some conceptual aspects of cost behavior and a business example Say a company s total costs are 2 500 000 when 100 000 units are made Of the total cost 500 000 is fixed Predict total costs when 120 000 units are made VC FC MC Volume Total Per Unit Total Per Unit Total Per Unit 100 000 2 000 000 20 500 000 5 2 500 000 25 120 000 2 400 000 20 500 000 4 17 2 900 000 24 17 500 000 VC 2 500 000 VC 2 000 000 500 000 100 000 5 per unit 25 5 20 OR 2 000 000 100 000 20 VC Per Unit stays the same FC Total stays the same 120 000 20 2 400 000 2 400 000 500 000 2 900 000 500 000 120 000 4 17 OR 2 900 000 120 000 24 17 If volume increases what happens to the variable cost per unit No change If volume decreases what happens to the total variable cost Decreases If volume increases what happens to the fixed cost per unit Decreases If volume decreases what happens to the total fixed cost No change What does directly proportional mean Which cost behavior does it apply to Move in same direction by same amount This applies to variable cost What does inversely proportional mean Which cost behavior does it apply to Move in opposite direction by same amount This applies to Fixed Cost Which cost is neither directly or inversely proportional Mixed
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