Question

QUESTIONS 3-1 What is a cost driver? Give three examples of costs and their possible cost drivers. 3-2 Explain linear-cost behavior 3-3 Step costs can be fixed or variable, depending on your perspective." Explain. 3-4 Explain how mixed costs are related to both fixed and variable costs. 3-5 How do management's product and service choices affect cost behavior? 3-6 Why are fixed costs also called capacity costs? 3-7 How do committed fixed costs differ from discretionary fixed costs? 3-8 Why are committed fixed costs the most difficult of the fixed costs to change? 3-9 What are the primary determinants of the level of committed costs? Discretionary costs? 3-10 "Planning is far more important than day- to-day control of discretionary costs." Do you agree? Explain.

it will be great if some account experts can answer my 10 of this questions.

Answer 1

Note: Answer to first 4 parts only as per HOMEWORKLIB POLICY. Please post the other parts separately.

Answer

1. A cost driver is a variable,such as the level of activity or volume,which causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For example,the number of vehicles assembled is a driver of the costs of steering wheels on a motor-vehicle assembly line

Examples of cost drivers are as follows:

• Direct labor hours worked

• Number of customer contacts

• Number of engineering change orders issued

• Number of machine hours used

• Number of product returns from customers

2.  Linear cost behavior is the relationship of cost given over a certain specific relevant range of activity level or in terms of cost driver levels. Under such behavior the cost behave in a straight line manner which is further cut through an intercept or a fixed cost estimate for the future, along with the total costs that increases on a proportionate basis as the cost driver activity increase.The linear cost behavior is represented via a straight line in which each givencost is either assumed to be a fixed cost or a variable cost.

3. A Step Cost has a constant level of cost for a range of output, then jumps to a higher level of cost where it remains for a range of output. Step costs with narrow ranges of activity are usually treated as a variable cost. Steps costs with steps that cover wide ranges of activity can be treated as fixed costs. A step fixed cost is a cost that does not change within certain high and low thresholds of activity, but which will change when these thresholds are breached. When the cost changes as a result of a threshold breach, a new set of high and low activity thresholds will then apply, within which the fixed cost will not change appreciably.

A step variable cost is a cost that generally varies with the level of activity, but which tends to be incurred at certain discrete points and to involve large changes in amounts when such a point is reached.

4. Mixed Costs: Mixed costs are costs that have both a fixed and a variable component.The formula for a mixed cost is:

Total cost = Total fixed cost + Total variable cost

A mixed cost is a cost that contains both a fixed cost component and a variable cost component. It is important to understand the mix of these elements of a cost, so that one can predict how costs will change with different levels of activity. Typically, a portion of a mixed cost may be present in the absence of all activity, in addition to which the cost may also increase as activity levels increase. As the level of usage of a mixed cost item increases, the fixed component of the cost will not change, while the variable cost component will increase.