management accounting summary ch3 for FCI

Capacity fixed costs:

The fixed costs of being able to achieve a desired level of production or to provide a desired
level of service while maintaining product or service attributes such as quality.

Rent/lease/taxes

Committed fixed costs:

Costs arising from the possession of facilities, equipment, and a basic organization.

Rent, rented machines, depreciation, insurance, and employees with long term
contracts

Discretionary fixed costs:

Costs determined by management as a part of periodic planning process in order to meet the
organization’s goals. They have no obvious relationship with levels of capacity or output activity.

Cost measurement:

Estimating or predicting costs as a function of appropriate cost drivers.

Activity analysis:

The process of identifying appropriate cost drivers and their effects on the costs of making a
product or service.

Engineering analysis:

The systematic review of materials, supplies, labor, support services, and facilities needed for
products and services; measuring cost behavior according to what cost should be, not what costs
have been.



In order to compute the variable cost of a table or graph, we use the High-low method:

Δy
Vc.¿ Δx
Basically:

Change in cost / change in activity