Week 6 - Cost Behaviour and Job-Order Costing III Flashcards
What are the types of fixed cost?
Committed and disrectionary
Define committed fixed costs
Long-term costs that cannot be reduced in the short run
What are some examples of committed fixed costs?
Rent and depreciation on buildings
Define discretionary fixed costs
Costs that may be altered in the short-term by current managerial decisions
What are some examples of discretionary fixed costs?
Advertising and research and development
What does increased automation lead to?
An increase in salaried knowledge workers who are difficult to train and replace
What is the trend in recent years?
We are moving towards fixed costs and away from wage related costs to the salaried
What are the implications of increased automation and its consequences?
- managers are locked in with fewer decision alternatives
- planning becomes more crucial because fixed costs are difficult to change with current operating decisions
What do we get when we subtract ALL variable costs from sales revenue?
Contribution
How do you get left over contribution?
Subtract fixed costs, resulting in contribution towards profit
What does the contribution margin format do?
Emphasises cost behaviour and the contribution margin covers fixed costs and provides for profit
How are cost organised in a contribution approach?
Costs are organised by behaviour
How are costs organised in a traditional approach?
They are organised by function
Which approach is used by who?
Traditional approach - used for external reporting
Contribution approach - used by management
