Cost Behavior

The video tutorial explains how organizations track and attribute costs to various sources, such as products and activities. It delves into cost behavior, highlighting the use of cost-volume-profit analysis to understand cost sensitivity to production volume changes. The concept of relevant range is introduced, explaining how it helps in determining the range within which cost changes occur. The tutorial categorizes cost behavior into fixed, variable, and mixed costs, with examples of step costs and how they vary with operational levels.

What is the primary purpose of cost-volume-profit analysis in organizations?

• To calculate the total revenue generated by the organization

• To analyze the impact of cost changes on production volume and profitability

• To determine the fixed costs of production

• To identify the sources of all organizational costs

How is the relevant range typically identified?

• By calculating the average cost over time

• By analyzing the total production output

• By using a random sampling method

• By applying the high-low method or a line of best fit

Which of the following best describes a fixed cost?

• A cost that combines elements of fixed and variable costs

• A cost that varies with the type of operation

• A cost that changes with each unit produced

• A cost that remains constant regardless of production level

What is a step cost?

• A variable cost that changes with each unit produced

• A cost that remains constant at all production levels

• A cost that decreases with increased production

• A fixed cost that changes at certain levels of operation

What characterizes a mixed cost?

• It is a cost that only occurs at high production levels

• It is entirely variable and changes with each unit produced

• It is entirely fixed and does not change with production

• It includes both fixed and variable components