Chapter 5
Cost Behavior:
Analysis and Use
McGraw-Hill /Irwin © The McGraw-Hill Companies, Inc., 2007
, Learning Objective
LO1
To understand how fixed and
variable costs behave and
how to use them to predict
costs.
5-2
, Types of Cost Behavior Patterns
Recall the summary of our cost behavior
discussion from Chapter 1.
Summary of Variable and Fixed Cost Behavior
Cost In Total Per Unit
Variable Total variable cost is Variable cost per unit remains
proportional to the activity the same over wide ranges
level within the relevant range. of activity.
Total fixed cost remains the
same even when the activity Fixed cost per unit goes
Fixed level changes within the down as activity level goes up.
relevant range.
5-3
, The Activity Base
Units Machine
produced hours
A measure of what
causes the
incurrence of a
variable cost
Miles Labor
driven hours
5-4
Cost Behavior:
Analysis and Use
McGraw-Hill /Irwin © The McGraw-Hill Companies, Inc., 2007
, Learning Objective
LO1
To understand how fixed and
variable costs behave and
how to use them to predict
costs.
5-2
, Types of Cost Behavior Patterns
Recall the summary of our cost behavior
discussion from Chapter 1.
Summary of Variable and Fixed Cost Behavior
Cost In Total Per Unit
Variable Total variable cost is Variable cost per unit remains
proportional to the activity the same over wide ranges
level within the relevant range. of activity.
Total fixed cost remains the
same even when the activity Fixed cost per unit goes
Fixed level changes within the down as activity level goes up.
relevant range.
5-3
, The Activity Base
Units Machine
produced hours
A measure of what
causes the
incurrence of a
variable cost
Miles Labor
driven hours
5-4
