Module+3000+VI+Vocabulary


 * XI. Module 3000 Vocabulary rpc**


 * 1)** **Cost Behavior – We aren’t referring to good or bad behavior. Cost behavior describes whether a cost changes when the level of activity/volume in manufacturing changes.**


 * 2)** **Fixed Costs – Fixed costs are expenses that are not dependent on the level of goods or services produced within a relevant range. Fixed costs do change over time. Examples of fixed costs are supervisors salaries, lease on building.**


 * 3)** **Variable Costs – Variable cost is a cost that changes in proportion to a change in a company’s activity level/volume/output. The formula for variable costs would be:**
 * Variable cost = total cost – fixed cost**


 * 4)** **Activity Drivers - Activity drivers are sometimes referred to as “cost drivers”. Activity drivers describe changes in cost by measuring activity in output or volume. Two kinds of activity drivers are** //unit-level drivers// **and** //non-unit-level drivers//**.** //Unit-level drivers// **explain changes in costs as output changes. Examples are materials, direct labor hours, electricity to run machines.** //Non-unit-level drivers// **describe how costs change as factors other than output changes. Examples are number of invoices prepared, number of material transfers**


 * 5)** **Relevant Range – Relevant range is defined as the range of activity over which a variable cost per unit remains constant or a fixed cost remains fixed in total. The relevant range is generally assumed to be the normal operating range of the company**


 * 6)** **Mixed Costs - A mixed cost consists of both a fixed and variable component. A good example of mixed costs could be your electric bill. You have a flat charge per month for electricity, fixed portion, and you are then charged so much per kilowatt (variable) x kilowatt hours used (activity driver). In the total cost of electricity you have both fixed components and variable****components. In the case of your electric bill, the formula for total mixed costs is: Total Mixed Costs = Total Fixed Costs + (Variable Cost per kilowatt hour x number of kilowatt hours used)**


 * 7)** **Step Costs – Step Costs are costs that are fixed over a small volume range, but are variable over a large volume range. An example would be a supervisors salary is fixed over a given range of production, but if the volume of production increases enough additional supervisors would have to be added. This additional expense of another supervisor would be added in a lump sum fashion. So the cost would step up according in relation to volume. Step costs can also go down if volume decreases significantly**


 * 8)** **Cost Equation – A Cost Equation seeks to identify and account for all costs that a business experiences in manufacturing a product or offering a service.**