University:
California State University, Northridge
Course:
ACCT 230 | Introduction to Managerial Accounting
Academic year:

2024
Views:

465

Pages:

16
Author:

Zaria Bauer

Chapter 5 Cost Behavior: Analysis and Use Part 2 Learning Objective LO2 To use a scattergraph plot to diagnose cost behavior. 5-31 The Scattergraph Method Plot the data points on a graph (total cost vs. activity). Maintenance Cost 1,000’s of Dollars Y 20 * * * * 10 0 0 1 2 * ** * ** 3 4 X Patient-days in 1,000’s 5-32 The Scattergraph Method Draw a line through the data points with about an equal numbers of points above and below the line. Maintenance Cost 1,000’s of Dollars Y 20 * * * * 10 0 0 1 2 * ** * ** 3 4 X Patient-days in 1,000’s 5-33 The Scattergraph Method Maintenance Cost 1,000’s of Dollars Use one data point to estimate the total level of activity and the total cost. Y Total maintenance cost = $11,000 20 * * * * 10 * ** * ** Intercept = Fixed cost: $10,000 0 0 1 2 3 4 X Patient-days in 1,000’s Patient days = 800 5-34 The Scattergraph Method Make a quick estimate of variable cost per unit and determine the cost equation. Total maintenance at 800 patients Less: Fixed cost Estimated total variable cost for 800 patients Variable cost per unit = $1,000 800 $ 11,000 10,000 $ 1,000 = $1.25/patient-day Y = $10,000 + $1.25X Total maintenance cost Number of patient days 5-35 Learning Objective LO3 To analyze a mixed cost using the high-low method. 5-36 The High-Low Method Assume the following hours of maintenance work and the total maintenance costs for six months. 5-37 The High-Low Method The variable cost per hour of maintenance is equal to the change in cost divided by the change in hours. Hours Total Cost High 800 $ 9,800 Low 500 7,400 Change 300 $ 2,400 $2,400 300 = $8.00/hour 5-38 The High-Low Method Total Fixed Cost = Total Cost – Total Variable Cost Total Fixed Cost = $9,800 – ($8/hour × 800 hours) Total Fixed Cost = $9,800 – $6,400 Total Fixed Cost = $3,400 5-39 The High-Low Method The Cost Equation for Maintenance Y = $3,400 + $8.00X 5-40 Quick Check  Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission? a. $0.08 per unit Units Cost b. $0.10 per unit High level 120,000 $ 14,000 c. $0.12 per unit Low level 80,000 10,000 40,000 $ 4,000 d. $0.125 per unit Change $4,000 ÷ 40,000 units = $0.10 per unit 5-42 Quick Check  Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions? Total cost = Total fixed cost + a. $ 2,000 Total variable cost b. $ 4,000 $14,000 = Total fixed cost + c. $10,000 ($0.10 × 120,000 units) d. $12,000 Total fixed cost = $14,000 - $12,000 Total fixed cost = $2,000 5-44 Least-Squares Regression Method A method used to analyze mixed costs if a scattergraph plot reveals an approximately linear relationship between the X and Y variables. This method uses all of the data points to estimate the fixed and variable cost components of a mixed cost. The goal of this method is to fit a straight line to the data that minimizes the sum of the squared errors. 5-45 Least-Squares Regression Method  Software can be used to fit a regression line through the data points.  The cost analysis objective is the same: Y = a + bX The output from the regression analysis can be used to create an equation that enables you to estimate total costs at any activity level. 5-46 Comparing Results From the Three Methods The three methods just discussed provide slightly different estimates of the fixed and variable cost components of the mixed cost. This is to be expected because each method uses different amounts of the data points to provide estimates. Least-squares regression provides the most accurate estimate because it uses all the data points. 5-47