Getting started quicker today. Only five minutes after six.Chapter 5: Cost Behavior, Analysis and Use
The measure of what causes a variable cost to be incurred is called the activity base. This could be machine hours, labor hours, units produced, whatever.
Type of business helps determine how many variable costs will be incurred, and what proportion of total costs will be variable costs.
Variable costs may be divided into true or proportional variable costs and stepped variable costs. True variable costs vary continuously with production. Stepped variable costs plateau at various production points.
Fixed costs can be divided into committed costs, which cannot be reduced in the short term, and discretionary costs, which can be adjusted by current managerial decisions.
There is a trend in the current business environment to reduce variable costs in favor of fixed costs.
Mixed costs contain both fised and variable elements.