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Step-Variable Costs

Step-Variable Costs. Total cost remains constant within a narrow range of activity. Cost. Activity. Step-Fixed Costs. 90. Total cost doesn’t change for a wide range of activity, and then jumps to a new higher cost for the next higher range of activity. 60.

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Step-Variable Costs

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  1. Step-Variable Costs Total cost remainsconstant within anarrow range ofactivity. Cost Activity

  2. Step-Fixed Costs 90 Total cost doesn’t change for a wide range of activity, and then jumps to a new higher cost for the next higher range of activity. 60 Rent Cost in Thousands of Dollars 30 0 0 1,000 2,000 3,000 Rented Area (Square Feet)

  3. Slope isvariable costper unitof activity. Semivariable Cost Total semivariable cost Variable Utility Charge Total Utility Cost Fixed MonthlyUtility Charge Activity (Kilowatt Hours)

  4. CurvilinearCost Function A straight-Line(constant unit variable cost) closely approximates a curvilinear line withinthe relevant range. Total Cost Relevant Range Curvilinear Cost CurvilinearCost Function Activity

  5. Depreciation on Buildings and equipment Advertising and Research and Development Direct Materials Engineered, Committed and Discretionary Costs Committed Long-term, cannot be reduced in the short term. Discretionary May be altered in the short term by current managerial decisions. Engineered Physical relationship with activity measure.

  6. Merchandisers Cost of Goods Sold Service Organizations Supplies and travel Merchandisers and Manufacturers Sales commissions and shipping costs Manufacturers Direct Material, Direct Labor, and Variable Manufacturing Overhead Cost Behavior in Other Industries Examples of variable costs

  7. Merchandisers, manufacturers, and service organizations Real estate taxesInsuranceSales salariesDepreciationAdvertising Cost Behavior in Other Industries Examples of fixed costs

  8. Cost Estimation Account-Classification Method Visual-Fit Method High-Low Method Least-Squares Regression Method Engineering Method of Cost Estimation

  9. Effect of Learningon Cost Behavior A systematic relationship betweenthe amount of experience inperforming a task and the timerequired to carry out the task. The average time per task declines by a constant percentage each time the quantity of tasks doubles.

  10. Learning Curve Learning effectsare large initially. Learning effectsbecome smaller, eventually reaching steady state. Average LaborTime per Unit Cumulative Production Output

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