ACCT 3130 Chapter 10

A ___ is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost.

Managers often estimate cost functions based on:

• Variations in the level of a single activity (cost driver) explain the variations in the related total costs

• Cost behavior is approximated by a linear cost function within the RELEVANT RANGE

Costs that change in total in relation to some chosen activity or output.

Costs that do not change in total in relation to some chosen activity or output.

Costs that have both fixed & variable components; also called semivariable costs.

The following graph shows Total Variable Cost:

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The following graph shows Total Fixed Cost:

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The following graph shows Total Mixed Cost:

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The following graph shows Variable Cost/Unit:

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The following graph shows Fixed Cost/Unit:

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