Quick Study Guide
Cost Behavior - Fixed and Variable

Variable Cost – The same per unit, changes in total as volume changes

Fixed Cost – The same in total, varies per unit as volume changes

Mixed Cost (Semi-variable) – Has characteristics of both fixed and variable

Mixed Cost = Total Fixed costs + (variable cost per activity x # activity)

Relevant Range – the range of activity where the fixed costs will not change
“assumption about cost behavior remains the same”

Opportunity Cost – Benefit given up because you chose another alternative
These costs are not recorded or incurred

Sunk Cost - cost that you can not change that has already been paid for

Committed – can’t be significantly reduced without changing the long term
goals of the company

Discretionary – management can decide not to spend without impacting
long term goals

A cost that says “per unit or activity” will always be a variable cost

Direct materials put into the product
Direct labor, “wages” used to make the product
Sales commissions paid based on sales

A cost that is paid annually/monthly in a lump sum will always be a fixed cost

Almost all administrative costs are fixed
All salary is fixed

Think about how the cost is paid. If it is paid in a lump sum for a time period it
is fixed. If it is paid as you buy it and use it and the more you use the
more you pay it is a variable cost

Mixed costs behave like variable costs – as activity increases so does the cost
and as activity decreases so does the cost (until you hit the fixed cost amount)