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1、Chapter 02 Cost Behavior：Analysis and UseChapter TwoCost Behavior: Analysis and UseLearning Objective 1Understand how fixed and variable costs behave and how to use them to predict costs.Recall the summary of our cost behavior discussion from an earlier chapter.Types of Cost Behavior PatternsThe Act
2、ivity BaseA measure of what causes the incurrence of a variable costUnits producedMiles drivenLabor hoursMachine hoursMinutes TalkedTotal Long Distance Telephone BillTrue Variable Cost ExampleA variable cost is a cost whose total dollar amount varies in direct proportion to changes in the activity l
3、evel. Your total long distance telephone bill is based on how many minutes you talk. Recall the summary of our cost behavior discussion from an earlier chapter.Types of Cost Behavior PatternsMinutes TalkedPer Minute Telephone ChargeVariable Cost Per Unit Example A variable cost remains constant if e
4、xpressed on a per unit basis. The cost per minute talked is constant. For example, 10 cents per minute.Extent of Variable CostsThe proportion of variable costs differs across organizations. For example . . . A public utility with large investments in equipment will tend to have fewer variable costs.
5、A manufacturing company will often have many variable costs.A merchandising company usually will have a highproportion of variable costs,like cost of sales.A service company will normally have a highproportion of variable costs.Examples of Variable CostsMerchandising companies cost of goods sold.Man
6、ufacturing companies direct materials, direct labor, and variable overhead.Merchandising and manufacturing companies commissions, shipping costs, and clerical costs, such as invoicing.Service companies supplies, travel, and clerical.VolumeCostTrue Variable CostDirect materials is a true or proportio
7、nately variable cost because the amount used during a period will vary in direct proportion to the level of production activity.Step-Variable CostsA resource that is obtainable only in large chunks (such as maintenance workers) and whose costs increase or decrease only in response to fairly wide cha
8、nges in activity is known as a step-variable cost.VolumeCostStep-Variable CostsSmall changes in the level of production are not likely to have any effect on the number of maintenance workers employed.VolumeCostStep-Variable CostsOnly fairly wide changes in the activity level will cause a change in t
9、he number of maintenance workers employedVolumeCostRelevant RangeA straight line closely approximates a curvilinear variable cost line within the relevant range. ActivityTotal CostEconomists Curvilinear Cost FunctionThe Linearity Assumption and the Relevant RangeAccountants Straight-Line Approximati
10、on (constant unit variable cost)Lets look at fixed cost behavior on the next screens.Types of Cost Behavior PatternsNumber of Local CallsMonthly Basic Telephone BillTotal Fixed Cost Example A fixed cost is a cost whose total dollar amount remains constant as the activity level changes. Your monthly
11、basic telephone bill is probably fixed and does not change when you make more local calls. Recall the summary of our cost behavior discussion from an earlier chapter.Types of Cost Behavior PatternsNumber of Local CallsMonthly Basic Telephone Bill per Local CallFixed Cost Per Unit ExampleAverage fixe
12、d costs per unit decrease as the activity level increases. The fixed cost per local call decreases as more local calls are made.ExamplesAdvertising and Research and DevelopmentExamplesDepreciation on Equipment and Real Estate TaxesTypes of Fixed CostsDiscretionaryMay be altered in the short-term by
13、current managerial decisionsCommittedLong-term, cannot be significantly reduced in the short term.The Trend Toward Fixed CostsThe trend in many industries is toward greater fixed costs relative to variable costs.As machines take over many mundane tasks previously performed by humans, “knowledge work
14、ers” are demanded for their minds rather than their muscles.Knowledge workers tend to be salaried, highly-trained and difficult to replace. The cost to compensate these valued employees is relatively fixed rather than variable.Is Labor a Variable or a Fixed Cost?The behavior of wage and salary costs
15、 can differ across countries, depending on labor regulations, labor contracts, and custom.In France, Germany, China, and Japan, management has little flexibility in adjusting the size of the labor force. Labor costs are more fixed in nature.In the United States and the United Kingdom, management has greater latitude. Labor costs are more variable in nature.Rent Cost in Thousands of Dollars 0 1,000 2,000 3,000 Rented Area (Square Feet)03060Fixed Costs and Relevant Range90 Relevant RangeTotal cost doesnt change for a wide range o
