HomeCosts are not always easily measured or captured in - financial statement The net benefit of those paths not taken are called - opportunity costs Are opportunity cost recorded? – no Sunking cost- Do not impact today’s decision-making, Today’s decision can’t change what has already happened, Have already been incurred, and you can’t get them back, Can be found as expenses on the income statement but also include costs for existing long-term assets and their related depreciation Period cost – cost of staying in business. Example of period cost – rent and deprecation of an office building, salaries or wages of office staff, adverting, telephone, and internet expense Product cost- is any cost incurred when making the item and ready to sale Example of product cost – direct materials and labor, and manufacturing overhead Variable costs - have a constant cost per unit and change in total based on usage of their cost driver If the cost driver increases total variable costs - increase. Fixed costs - are fixed in total and do not change as more units are made within the available capacity. Within the relevant range - fixed costs remain the same in total and the per unit amount will increase or decrease, depending on the level of production. Relevant range - is the range of units (activity level) that can be produced, from zero units up to a company’s capacity. Understanding Cost Behavior Helps Us to - Predict costs, Estimate costs, Budget costs ,Plan costs, Control costs Cost drivers- are the activities that cause a particular cost. The account analysis method -uses actual costs within a general ledger to predict its future cost. The high low method - uses actual cost relations to make predictions of future mixed costs The regression method - uses every point in a data set in a mathematical computation designed to minimize the vertical distance among the given data points. Linear cost function – variable cost x activity level + fixed cost Sales in Units to Break Even – total fixed cost / contribution margin per unit The margin of safety - is the difference between total unit sales (or sales in dollars) and the break even point in units (or sales dollars) Sales in units to achieve target profit – total fixed cost + target profit / contribution margin per unit Sales in dollar to achieve target profit - total fixed cost + target profit / contribution margin ratio Relevant cost are – differential , avoidable, and in the future Any fixed costs avoided by dropping a product line or closing a business segment should be - larger than the contribution margin given up A resource constraint - is a limitation on the availability of a particular input needed for production Direct fixed costs - are directly attributable to a product line. Segment margin - Sales minus Variable costs minus Direct fixed costs If a unit’s segment margin is large enough - it can cover its allocated fixed cost and still contribute to the overall company’s profit. Weighted Average Contribution Margin - Need a modified average contribution margin for all the product types sold, The relative sales mix of each product type provides the weightings, Each product generally has different selling prices and variable cost, and hence different contribution margins.

Costs are not always easily measured or captured in - financial statement The net benefit of those paths not taken are called - opportunity costs Are opportunity cost recorded? – no Sunking cost- Do not impact today’s decision-making, Today’s decision can’t change what has already happened, Have already been incurred, and you can’t get them back, Can be found as expenses on the income statement but also include costs for existing long-term assets and their related depreciation Period cost – cost of staying in business. Example of period cost – rent and deprecation of an office building, salaries or wages of office staff, adverting, telephone, and internet expense Product cost- is any cost incurred when making the item and ready to sale Example of product cost – direct materials and labor, and manufacturing overhead Variable costs - have a constant cost per unit and change in total based on usage of their cost driver If the cost driver increases total variable costs - increase. Fixed costs - are fixed in total and do not change as more units are made within the available capacity. Within the relevant range - fixed costs remain the same in total and the per unit amount will increase or decrease, depending on the level of production. Relevant range - is the range of units (activity level) that can be produced, from zero units up to a company’s capacity. Understanding Cost Behavior Helps Us to - Predict costs, Estimate costs, Budget costs ,Plan costs, Control costs Cost drivers- are the activities that cause a particular cost. The account analysis method -uses actual costs within a general ledger to predict its future cost. The high low method - uses actual cost relations to make predictions of future mixed costs The regression method - uses every point in a data set in a mathematical computation designed to minimize the vertical distance among the given data points. Linear cost function – variable cost x activity level + fixed cost Sales in Units to Break Even – total fixed cost / contribution margin per unit The margin of safety - is the difference between total unit sales (or sales in dollars) and the break even point in units (or sales dollars) Sales in units to achieve target profit – total fixed cost + target profit / contribution margin per unit Sales in dollar to achieve target profit - total fixed cost + target profit / contribution margin ratio Relevant cost are – differential , avoidable, and in the future Any fixed costs avoided by dropping a product line or closing a business segment should be - larger than the contribution margin given up A resource constraint - is a limitation on the availability of a particular input needed for production Direct fixed costs - are directly attributable to a product line. Segment margin - Sales minus Variable costs minus Direct fixed costs If a unit’s segment margin is large enough - it can cover its allocated fixed cost and still contribute to the overall company’s profit. Weighted Average Contribution Margin - Need a modified average contribution margin for all the product types sold, The relative sales mix of each product type provides the weightings, Each product generally has different selling prices and variable cost, and hence different contribution margins.