Methods of cost assignment to cost object

1 Cact tracing

2 Diver tracing

3. Allocation

Cost Behavior and Analysis of Mixed Cost

Cest behavior is the functional relationship between changes in activity and changes

w cost Costs a dependent variable There is no cost if there is no activity. The activity
is

an independent variable

Relevant range is the range of activity within which assumptions relative to variable
and fixed cost behavior a valid Cost behavior is assumed to be on short-run because
over the long run all costs will change. Further, to simplify cost analysis and
estimation near relationship is assumed. Hence, the linear cost function or formula is

y=a+bx
y-total cost or the mixed cost

a-fixed cost

b-rate of variable cost

x-level of activity

b= total variable cost

Cost structure is the relative proportion of fixed, vanable, and mixed costs found

within an organization

Cost classified by behavior

1. Variable cost-cost that changes in total in direct proportion to changes in activity

level throughout the relevant range: Variable cost is constant per unt
2. Fixed cost-constant in total amount regardless of the change in activity level
throughout the relevant range. This cost vary indirectly with changes in activity on a
por unit basis

3. Semivariable costs or mixed costs components costs that have both vanable and
foxed

4. Step cost is a type of cost that shifts upward or downward when activity changes
by a certain interval or 'step Step vanable costs have small steps, while step fixed

costs have large steps

Types of fixed cost

1 Committed fixed costs - those cost that are difficult to adjust and that relate to
investment in facilities, equipment, and the basic organization structure of the firm
These cost cannot be reduced within a short period of time.

2 Discretionary fixed cost-also programmed or managed fixed costs, are cost that
managers can elect to spend or not to spend. Examples are advertising, research.
and management development programs