Chapter 2 Flashcards
What 4 questions should managers ask regarding costs?
- What costs are involved in making a product or providing a service?
- If we decrease prodcution volume, will costs decrease?
- What impact will automation have on total costs? (CIM)
- How can we best control costs?
What s need for cost behabioru analysis?
need reliable and relevant cost info
What are some points about a service industry
- services are consumed immediately
- they do not produce inventory
- need to keep track of cstos fo its services in order to tell if they are generating a profit
- need to track what the costsa re on each consulting job
- can prepare a cost of service provided schedule
For a service company what do they use?
Cost of services provided schedule
Define cost behviour analsysis
the study of how specific costs respond to changes in the level of business activity.
in the cost behaviour analysis do all cost change?
no, some costs change, others remain the same
what is the starting point for cost behavoiur analysis?
measuring the key business activity levels in terms of dollars, km, room occupancy, dance lessons taught etc.
what is needed for an activity level to be useful?
changes in level or volume must correlate to changes in cost
what is the activity index
the avtivity level selected
What does the activity index do?
it identifies the the activity that causes the changes in the behaviour of costs
what are the 3 categoris of cost behvaiour analysis
- fixed
- variable
- mixed
what isthe importance of identifying variable dn fixed costs?
see book
What is the formula used to determine mixed costs
High low method
high cost - low cost / highest activity - lowest activity = variable cost
high cost - (variabel cost x highest activity) = fixed
*double check this
