5-3

Step-Variable Costs Total Fixed Cost Example

A fixed cost is a cost whose total dollar amount remains

Only fairly wide changes in the activity level will constant as the activity level changes. Your monthly
cause a change in the number of maintenance basic telephone bill is probably fixed and does not
workers employed
change when you make more local calls.

Monthly Basic
Telephone Bill
Cost

Number of Local Calls

Volume
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The Linearity Assumption and the Relevant Range Types of Cost Behavior Patterns

Recall the summary of our cost behavior

A straight line
Economist’s
closely discussion from an earlier chapter.
Curvilinear Cost approximates a
Function curvilinear
variable cost
line within the
Relevant
relevant range.
Total Cost

Range
Accountant’s Straight-Line
Approximation (constant
unit variable cost)

Activity
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Types of Cost Behavior Patterns Fixed Cost Per Unit Example

Average fixed costs per unit decrease as the activity

Let’s look at fixed cost behavior on the next level increases. The fixed cost per local call
screens. decreases as more local calls are made.
Monthly Basic Telephone
Bill per Local Call

Number of Local Calls

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