Chapter 5

Chapter 5

Fixed Costs: costs that remain the same in total, but vary per unit when production volume changes (do vary on a per unit basis). Examples include rent, salary of a plant manager, insurance, taxes, and depreciation.

Variable costs: vary in direct proportion to changes in production volume but are fixed when expressed as per unit amounts. As production increases, variable costs increase in direct proportion to the change in volume.

Step costs: costs that vary with activity in steps and may look like and be treated as either variable costs or fixed costs; step costs are not technically fixed costs, but may be treated as such if they remain constant within a relevant range of production

Mixed costs: Costs that include both a fixed and variable component, making it difficult to predict the behavior of a mixed costs as production changes unless the cost is first separated into its fixed and variable components

Regression Analysis: uses statistical methods to fit a cost line (regression line) through a number of data points. Regression analysis