Module 3 ACC202
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Module 3 - Home
Variable and Fixed Costs
Modular Learning Outcomes
Upon successful completion of this module, the student will be able to satisfy the following outcomes:
•Case ◦Evaluate behavioral cost information.
•SLP ◦Prepare variable costing type of analysis.
•Discussion ◦Explain the performance measurement.
Module Overview
Understanding Variable and Fixed Costs
Managers who understand how costs behave are better able to predict costs and make decisions under various circumstances. Let's explore the meaning of fixed, variable and mixed costs (the relative proportions of which define an organization’s cost structure). A variable costing income statement can be quite useful for the internal decision making process. It is not only a formal internal income statement, but more importantly a way of thinking.
Managers need detailed information to make decisions. The typical income statement that aggregates the revenues and expenses for all products or services is not adequate for planning purposes. A segmented income statement breaks down information by product, service, or some other relevant grouping.
We'll continue to work with the variable costing approach in this module. Both variable and fixed costs will receive additional attention throughout this course. See background material for more definitions.
Additional income statement related terms.
Direct Fixed Costs. These are costs that do not change with changes in a segment's activity but will disappear if the segment is closed. An example is the salary of the segment manager. These costs are often called traceable costs.
Segment Margin. This is the segment revenue less both the segment variable costs and the segment specific fixed costs. This is the contribution the segment makes to the organization during the period.
