Chapter 6 Flashcards
What are the 4 examples of an Activity Base?
Units Produced, Machine Hours,
Miles Driven, Labour Hours
What is an Activity Base?
A measure of what causes the incurrence of a variable cost
What is a True Variable Cost?
total dollar amount varies in direct proportion to changes in the activity level.
What is Variable Cost per unit?
Remains constant if expressed on a per unit basis. The cost per minute worked is constant.
An example of variable costs
A manufacturing company will often have many variable costs.
Are Direct Materials a variable cost?
Yes the amount used during a period will vary in direct proportion to the level of labour and overhead
What is a Step variable costs?
A resource that is obtainable only in large chunks (such as maintenance workers) and whose costs increase or decrease only in response to fairly wide changes in activity
What is The Linearity Assumption?
A straight line closely approximates a curvilinear variable cost line within the relevant range
What is a Total Fixed Cost?
A fixed cost is a cost whose total dollar amount remains constant as the activity level changes.
What is a fixed cost per unit?
Average fixed costs per unit decrease as the activity level increases.
What is a Committed Fixed Cost?
Long-term, cannot be significantly reduced in the short term
Example of a committed fixed cost?
Depreciation on Equipment and Real Estate Taxes
What is a Discretionary fixed cost?
May be altered in the short-term by current managerial decisions
What is an example of Discretionary fixed cost?
Advertising and Research and Development
What is the trend towards fixed costs?
The trend in many industries is toward greater fixed costs relative to variable costs. They use Knowledge workers more often
