Chapter 9 - Basic cost concepts

Question 1

what are the 2 types of costs?

Answer 1

1. Fixed Cost vs Variable Cost
2. Discretionary Fixed Cost - Cost that you may choose to avoid dying the short run, however continued avoidance will generally cause problems. i.e. educational cost)
3. Step Costs
4. Mixed Costs

Question 2

what is the formula for total cost?

Answer 2

TOTAL COST = FIXED COST + (VARIABLE COST PER UNIT X UNIT SALES)

Question 3

what are the 3 ways of determining mixed costs?

Answer 3

High/Low Two Point Method
Scatter Diagram
Regression Analysis

Question 4

what is high/low two point method?

Answer 4

Pick extreme two month (High and Low) and compute the difference. Then Variable cost = Mixed Cost Difference / Rooms Sold Difference
This number X Rooms sold = Variable Cost

Question 5

what is scatter diagram?

Answer 5

can be used to visualize the relationship between activities and costs

Question 6

what is regression analysis?

Answer 6

Most sophisticated method to determine appropriate fixed-variable cost

Question 7

what is relevant cost?

Answer 7

Differential Cost. (Quantified and incurred in the future)

Question 8

what is sunk cost?

Answer 8

Not considered into decision making because they were already incurred

Question 9

what is controllable costs?

Answer 9

Controllable Costs - costs can be regulated