Part 1 — Cost Management

A cost whose total changes in direct proportion to the level of activity, while the cost per unit stays constant within the relevant range (e.g., direct materials).

A cost whose total remains unchanged over the relevant range regardless of activity, but whose cost per unit decreases as activity increases (e.g., factory rent).

A cost containing both a fixed component and a variable component, expressed as y = a + bx (a = fixed, b = variable rate per unit of activity x). Example: utilities with a base charge plus usage.

A cost that stays fixed over a range of activity then jumps to a new level once a threshold is crossed (e.g., adding a supervisor per shift). Step-variable costs have narrow steps; step-fixed costs have wide steps.

The range of activity over which assumed cost-behavior patterns (fixed costs constant in total, variable costs constant per unit) are valid; outside it, those linear assumptions break down.

Direct costs can be economically traced to a specific cost object (e.g., direct materials, direct labor). Indirect costs cannot be conveniently traced and are allocated (e.g., factory overhead).