Friday, June 5, 2015

Cost Classifications for Predicting Cost Behavior

  Cost behavior refers to how a cost reacts to changes in the level of activity within the relevant range.
Total variable costs change when activity changes.
Total fixed costs remain unchanged when activity changes.
Variable Cost
Total cost of batteries is based on the number of autos produced in a month.

Variable Cost Per Unit: The per unit cost of batteries remains constant at $24.
Fixed Cost:
Total cost of monthly rent is fixed for the number of lab tests performed in a month. The monthly rent does not change based on the number of lab tests that may be performed during the month.
Fixed Cost per Unit increases and decreases inversely and changes in activity. For example the average cost per unit will fall as the number of test performed increases.

Summary of Variable and Fixed Cost Behavior

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