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UGA ACCT 2102 - Cost Behavior
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ACCT 2102 1st Edition Lecture 17 Outline of Last LectureI. Ruffle’s Department 2 ExampleII. Important NotesOutline of Current Lecture:III. Cost BehaviorIV. Example of Cost BehaviorV. Conceptual AspectsCurrent 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 (fixedcost) however your game fee increases as you bowl more gameIV. Example of Cost BehaviorI’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 costIf 50 guests attend, what are the total expected costs?($10/person * $50) + $400 = $900These 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/personV. 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 MCVolume Total Per Unit Total Per Unit Total Per Unit100,000 2,000,000 $20 500,000 $5 2,500,000 $25120,000 2,400,000 $20 500,000 $4.17 2,900,000 $24.17500,000 + VC = 2,500,000VC = 2,000,000500,000/100,000 = $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 = $2,400,0002,400,000+500,000 = 2,900,000500,000/120,000 = $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 changeWhat 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?


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UGA ACCT 2102 - Cost Behavior

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