Slide 1 ___________________________________ 4.1 T ype s of Cost - - PDF document

Slide 1

4.1 T ype s of Cost Patte rns

• Cost Be havior Patte r

ns

• Va ria ble
• F

ixe d

• Mixe d or se mi- varia ble
• Cost Str

uc tur e

• Ac tivity Ba se or c ost dr

ive r

• Common a c tivity ba se s
• Dire c t labor hours, ma c hine hours, dire c t la bor

c ost, units produc e d

• Othe r

le ss c ommon ac tivity ba se s

• Mile s drive n by sale spe rsons, number of

invoic e s ma iled out by the ac c ounts rec e iva ble de pa rtme nt, numbe r of surve y c a lls made by a marketing re se a rc h firm, number

• f oc c upie d be ds in a hospita l

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 2

T r ue Var iable vs. Ste p Var iable

• T

rue Variable Costs

• Ste p- Va r

iable Costs

Ste p Va r ia ble Cost $ $ Ac tivity

E xhibit T 4M1~1 T rue and Ste p Variable Costs

Ac tivity T r ue Va r ia ble Cost

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 3

L ine arity Assumption

• Curviline a r Cost
• Re le vant Rang e

R e le va nt Ra ng e Ac c ounta nt’s Stra ig ht line a pproxima tion E c onomist Curviline a r Cost F unc tion $ Ac tivity

Exhibit T 4M1~2 c urviline a r c ost a nd re le vant rang e

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________

Slide 4

T ype s of F ixe d Costs

• Committe d F

ixe d Costs

• F

ixe d c osts diffic ult to c hang e

• Commonly c a pital inve stme nt

fixe d c osts

• T

wo c harac te r istic s

• L
• ng te rm
• Diffic ult to r

e duc e e ve n in shor t-te r m

• E

xample s

• De pre c iation of buildings & e quipme nt
• Prope rty ta xe s
• Auto and prope rty insuranc e
• E

xe c utive sa la rie s

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 5

• Disc r

e tionary F ixe d Costs

• AKA manage d fixe d c osts
• Shor

t-te r m fixe d c osts

• E

xample s

• Adve rtising
• Re se a rc h a nd de ve lopme nt
• E

mploye e training

T ype s of F ixe d Costs

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 6

Committe d vs. Disc r e tionar y

• Planning time ta ble
• Committe d fixe d c osts te nd to have

a long- te r m pla nning oblig ation

• Disc r

e tionary fixe d c osts te nd to ha ve a shor t-te r m planning

• bligation – usua lly a single ye ar
• Disc re tionary fixe d c osts c a n be

a djuste d in the short- te rm without tre me ndous impa c t on long- te rm g oals

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________

Slide 7

F ixe d Costs and the R e le vant Range

• L

ar g e r ste ps tha n ste p variable c osts

• Can’t be c ha ng e d as e asily
• i.e . building le a se

R e le va nt Ra ng e Ac tivity

Exhibit T 4M1~3 fixe d c osts and the re le vant rang e

$

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________