© 2007 Mark T. Schenkel 1

Expense ForecastingETP 3700: Entrepreneurial Financial ManagementDr. Mark T. Schenkel

© 2007 Mark T. Schenkel 2

Cost behavior

1. Variable Costs

2. Fixed Costs

3. Mixed Costs

© 2007 Mark T. Schenkel 3

Type of Expense Activity BaseSales commissions SalesMaterials cost Units producedHealth insurance Number of employeesWages expense Number of hours workedPayroll tax expense Dollars of wages paid

Variable Costs

© 2007 Mark T. Schenkel 4

Figure 5-1

Variable Cost Behavior

Total Variable Cost Line

Total Units Produced

$

© 2007 Mark T. Schenkel 5

Fixed Costs

1. Committed fixed costs

2. Discretionary fixed costs

© 2007 Mark T. Schenkel 6

Figure 5-2

Fixed Cost Behavior

Total Fixed Costs

Total Units Produced

$

© 2007 Mark T. Schenkel 7

Breakeven

Fixed Cost .

Variable Revenue – Variable Cost