2. A variable cost is a cost that varies in total in proportion to a business activity. Within the relevant range, variable cost per unit is constant. As the level of activity increases, the total cost increases by the same proportion. Examples include commissions, cost of bicycle tires for a bicycle manufacturer, and cost of postage for a direct mail advertiser. 3. A fixed cost is a cost that does not change in total with the activity level. Within the relevant range, the total fixed cost remains constant as the activity level changes. However, the cost per unit varies inversely with changes in activity level. Examples include monthly rent, a manager’s salary, and property taxes. 4. Discretionary fixed costs are fixed costs that can be changed over the short run. Committed fixed costs cannot be changed over the short run. 5. A cost is a cost that has both fixed and variable components. As the level of activity increases, the total cost increases and the cost per unit decreases. Examples include electricity cost, party hall rental when the charge includes a flat fee plus a cost per guest, and t-shirt printing when the charge includes a set up fee plus a charge for each t-shirt printed. A step cost is a cost that is fixed over a small range of activity. Total 6. cost will not change as activity levels increase if the level of activity is within a certain range. However, once the activity level exceeds this range, total cost will increase. Examples include maintenance costs when a new maintenance worker is needed per 10 machines, nurse salaries per 5 patients on a hospital floor, and hotel room rates per 4 students on a class trip. Unit 2.2 1. TC = (VC x) + FC 2. With a scattergraph, a line is drawn to best fit the data points. The point at which the line intersects the y-axis is the value for fixed costs. The slope of the line, change in total cost divided by change in activity, is the variable cost per unit.
2. A variable cost is a cost that varies in total in proportion to a business activity. Within the relevant range, variable cost per unit is constant. As the level of activity increases, the total cost increases by the same proportion. Examples include commissions, cost of bicycle tires for a bicycle manufacturer, and cost of postage for a direct mail advertiser. 3. A fixed cost is a cost that does not change in total with the activity level. Within the relevant range, the total fixed cost remains constant as the activity level changes. However, the cost per unit varies inversely with changes in activity level. Examples include monthly rent, a manager’s salary, and property taxes. 4. Discretionary fixed costs are fixed costs that can be changed over the short run. Committed fixed costs cannot be changed over the short run. 5. A cost is a cost that has both fixed and variable components. As the level of activity increases, the total cost increases and the cost per unit decreases. Examples include electricity cost, party hall rental when the charge includes a flat fee plus a cost per guest, and t-shirt printing when the charge includes a set up fee plus a charge for each t-shirt printed. 6. A step cost is a cost that is fixed over a small range of activity. Total cost will not change as activity levels increase if the level of activity is within a certain range. However, once the activity level exceeds this range, total cost will increase. Examples include maintenance costs when a new maintenance worker is needed per 10 machines, nurse salaries per 5 patients on a hospital floor, and hotel room rates per 4 students on a class trip. Unit 2.2 1. TC = (VC x) + FC 2. With a scattergraph, a line is drawn to best fit the data points. The point at which the line intersects the y-axis is the value for fixed costs. The slope of the line, change in total cost divided by change in activity, is the variable cost per unit.
Solution-Manual-for-Managerial-Accounting-2nd-Edition-by-Davis.docx