Young- Differential Cost Accounting

Question 1

Fixed cost

Answer 1

those costs that remain at the same level regardless of the number of units of service delivered.
Example: rent

Question 2

Semi-fixed costs

Answer 2

similar to fixed costs, except they have a much narrower relevant range; they do not change in a smooth fashion, added in lumps. Graph looks like steps. Example: as the number of nurses and SWs are added, supervisory personnel must be added.

Question 3

Variable costs

Answer 3

costs that behave in a linear fashion in accordance with changes in volume. As volume increases, total variable costs will increase in some constant proportion; sloped line, the increase of which is determined by the amount of variable costs associated with each unit of output. Example: medical supplies and pharmaceuticals. High variable costs per unit will result in a line that slopes upward steeply, while low variable costs for each unit of output will make the variable cost line slope upward more slowly.

Question 4

Contribution

Answer 4

the amount that each program in an organization contributes to the recovery of the indirect costs.
A program provides some revenues and incurs some direct costs.
The difference between the revenue provided and the direct costs (both fixed and variable) is the contribution of that program to the organization’s indirect costs.

Question 5

Sunk costs

Answer 5

an investment already incurred that can’t be recovered; those expenditures which have been made in the past, which appear on a full cost report, but which, because they have already been incurred and the decision cannot be changed, are inappropriate for future considerations. Should not be incorporated into a differential cost analysis, which is concerned only with the future.