Types Of Fixed Cost

CH 6
Variable Fixed Mixed
Total cost Change Same Change
Unit Same Change Change
Viable: Graphs of variable costs always begin at the origin, the point that represents zero volume and zero cost.
Slope of variable cost line represent represents the variable cost per unit of activity.
Total variable cost(y) = variable cost per unit of activity(v)×volume of activity(x)
Total variable costs change in direct proportion to changes in volume.
When volume ⬆total variable cost ⬆
When volume ⬇total variable cost ⬇
Fixed: stay constant over a wide range of volume, do not change in total despite wide changes in volume.
Total fixed cost graphs are always flat lines with no slope that intersect the y-axis at a level equal to total fixed costs.
Some fixed costs: property taxes and insurance; depreciation and maintenance on parking ramp, hotel and room furnishings; pool, fitness room and spa upkeep; cable TV and wireless internet access for all rooms; salaries of hotel department managers (housekeeping, food service, special events).
Management has little or no control over committed fixed costs in the short run. But they have more control over discretionary fixed costs in the short run.
Fixed cost per guest is inversely proportional to the number of guests.
When volume ⬆fixed cost per unit of activity ⬇
When volume ⬇fixed cost per unit of activity ⬆
Businesses like to operate near full capacity because it lowers their fixed cost per unit. A lower cost per unit gives businesses the flexibility to lower their prices to compete more effectively.
Mixed: contain both variable and fixed cost components.
The line does not begin at the origin. It intersects the y-axis at a level equal to the fixed cost component.就是说就算它什么都没有生产，或者比如一家酒店没有一个顾客来，这个月他的fixed cost都要付。It increases as volume increase, but not indirect proportion to changes in volume. 如果酒店接客流量是往常的两倍，mixed cost per guest不会降低一半，因为还有variable cost在里边。
Total mixed costs increase as volume increase because of the variable cost component.
Mixed costs per unit decrease as volume increase because of the fixed cost component.
Total mixed costs= variable cost component + fixed cost component = y = vx + f
Relevant range: is the band of volume where the following remain constant: 1. Total fixed costs. 2. Variable cost per unit.
A change in cost behavior means a change to a different relevant range.
Step costs resemble stair steps: they are fixed over a small range of activity and then jump up to a new fixed level with moderate changes in volume.
Some company use straight-line depreciation on parking ramp, building, and furnishings, the manager would classify the depreciation expanse accounts as fixed costs.
Scatter plot: the historical cost data on the y-axis and volume data on the x-axis, helps manager visualize the relationship between the cost and the volume of activity. 1. Close to a straight line→strong relationship
2. no relationship→appear almost random.
Outliers: are data points that do not fall in the same general pattern as the other data points.
2 ways to estimate the cost equation that describes the data in the scatter plot: high-low method; regression analysis (theoretically regression analysis is better than high-low).
High-low method: high data point based on the month with the highest volume of activity, not highest cost (4 steps, Page. 336).
Slope=variable cost per unit of activity = rise/run = (high y – low y)/ (high x – low x)
Drawback: high-low 的缺点是只用了两个point, 不够精确。
Regression analysis: statistical procedure for determining the line and cost equation that best fits all of the data points, not just the high-volume and low-volume data points.
如果题中给出R-square表格：intercept coefficient refers to vertical intercept, 代入F；x variable 1 coefficient refer to slope, 代入V，the R-square value指的是goodness of fit statistic, range in value from zero to one, the higher the R-square, the stronger the relationship between cost and volume; ＞0.8indicates that

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