Costs Classification by Relevance ◆ Opportunity Costs n The potential benefit that is given up when one alternative is selected over another n Example: If you were not attending college or university, you could be earning $25,000 per year. Your opportunity cost of attending college or university for one year is $25,000. Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
11 Costs Classification by Relevance ⧫Opportunity Costs The potential benefit that is given up when one alternative is selected over another. Example: If you were not attending college or university, you could be earning $25,000 per year. Your opportunity cost of attending college or university for one year is $25,000
Costs Classification by Behavior C Cost behavior refers to n how a cost will react to changes in the level of business activity. ◆ Fixed costs n do not change when activity changes. ◆ Variable costs n change in proportion to changes in the volume of activity Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 12
12 Costs Classification by Behavior ⧫Cost behavior refers to how a cost will react to changes in the level of business activity. ⧫Fixed costs do not change when activity changes. ⧫Variable costs change in proportion to changes in the volume of activity
Costs Classification by Behavior Q Total fixed costs remain unchanged when activity changes within a relevant range. Q Fixed costs per unit decline as activity increases. 00 × 0 Volume of Activity Volume of Activity Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 13
13 ⧫ Total fixed costs remain unchanged when activity changes within a relevant range. ⧫ Fixed costs per unit decline as activity increases. Costs Classification by Behavior Volume of Activity Fixed costs per unit Volume of Activity Total fixed costs
Costs classification by Behaviour QTotal variable costs change when activity changes Q Variable costs per unit do not change as activity Increases。 O>元 Volume of activity Volume of activity Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 14
14 ⧫Total variable costs change when activity changes. ⧫Variable costs per unit do not change as activity increases. Costs Classification by Behaviour Volume of activity Total variable costs Volume of activity Variable costs per unit
Costs classification by Behavior ◆ Mixed costs a contain a combination of fixed and variable costs 0E00元 Variable Sales commissions Fixed Monthly salary Sales Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 15
15 Costs Classification by Behavior ⧫ Mixed costs contain a combination of fixed and variable costs. Variable Sales Commissions Sales Total Compensation Fixed Monthly salary