I am going to talk about the chpter10 -Determining how costs behave
Why we should to understand about the cost behave, because this is very important for managers to make decision , like what price to charge, Whether to make or buy, or other questions related to costs. Before study the cost behave ,we need to have know how costs change in relation to various factors. Ok , lets focus on how to determine cost behavior.
There are 8 objectives in this chapter , the 1,2,3~~~~~, I will introduce each one later.
Lets start form the objective 1 :````
Before talk about the basic assumptions , we need to know what is the cost functions. Managers are able to understand cost behavior through cost functions> A cost function is a mathematical expression describing how costs change with changes in the level of an activity. Examples of activities are output produced , direct manufacturing labor hours , machine hours and batches of production.
Managers often estimate cost functions based on two assumptions. 1 is changes in total costs can be explained by changes in the level of a single activity. Examples like this are variation in machine hours can explain variations in total cost and variation in labor hours can explain variations in total cost.
2 is cost behavior can adequately be approximate by a linear function of the activity level within the relevant range. A linear cost function is a cost functionn in which the graph of total cost versus the level of a single activity is straight line. I will talk about more in objective 2
The objective 2 is desvribe linear cost functions and three common ways in which they behave
To understand three basic types of linear cost functions , I will use a example to explain it. The alternative 1 is :~~~
Under alternative 1, there is no fixed cost. I write the cost function in picture 1. I will use grapy to explain it later.
The $60 slope coefficient is here , the amount will be changed when the X number of rooms changes>
Lets see the alternative 2
We can use picture to understand it . $8,000 is called a constant , it does not vary with changes in the level of the activity. The slope coefficient of the cost function is zero.
Now we can see the alternative 3 .
Under the alternative 3, it has both a constant , value of $3000, and a slope soefficient of $24. In the case of mixed cost, total cost in the relevant range increases as the number of rooms used increases.
The objective 3 is `````
There are 4 methods about cost estimation approaches 1,2,3,4```
Objedctive 4 is ~~~~
Estimate a cost function has six steps! There are 1,2,3,4,5,6~~~
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