Ch 6

Question 1

variable cost

Answer 1

costs that change in total direct proportion to change in volume
packaging , dl, dm

when graphing, the line begins at the origin ($0, 0 units of output

Question 2

fixed cost

Answer 2

cost that do not change, regardless of changes in volume (rent)

Question 3

type of fixed cost

Answer 3

committed fixed cost :
locked into cost (at least for several years) so total cost cannot be changed
ex. salary, rent

discretionary fixed costs:
cost that are “annual” management decisions (advertising) , so fixed in the short run, but could change the cost in the long term

Question 4

mixed costs

Answer 4

cost that change in total, but not in direct proportion to changes in volume. Has both fixed cost and variable cost components built in to total cost (cell bill)

Question 5

step cost

Answer 5

fixed over a small range of activity and then “steps up” to new relevant range (child care center)
different than fixed cost

Question 6

sunk cost

Answer 6

irrelevant for decision making

Question 7

formula for variable cost per unit

Answer 7

(cost associated with high activity - cost associated with low activity ) / (high activity - low activity)