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Cost Behavior: Analysis and Use j.paquette

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Cost Behavior: Analysis and Use j.paquette

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    1. Cost Behavior: Analysis and Use j.paquette/Accounting 230/Bellevue Community College

    2. Learning Objectives Define/discuss the concept of Cost Behavior True vs. Step Variable cost Understand relevant range Use scattergraph plot to diagnose cost behavior Use high-low method to analyze mixed costs Using contribution format, prepare an IS

    3. Types of Cost Behavior Patterns

    4. The Activity Base

    5. True Variable Cost Example Your total long distance telephone bill is based on how many minutes you talk.

    6. Variable Cost Per Unit Example The cost per minute talked is constant. For example, 10 cents per minute.

    7. Step-Variable Costs

    8. Step-Variable Costs

    9. The Linearity Assumption and the Relevant Range

    10. Total Fixed Cost Example Your monthly basic telephone bill is probably fixed and does not change when you make more local calls.

    11. Fixed Cost Per Unit Example The fixed cost per local call decreases as more local calls are made.

    12. Cost Behavior

    13. Types of Fixed Costs

    14. Example: Office space is available at a rental rate of $30,000 per year in increments of 1,000 square feet. As the business grows more space is rented, increasing the total cost. What is the relevant range? Fixed Costs and Relevant Range

    15. Fixed Costs and Relevant Range

    16. Fixed Costs and Relevant Range

    17. Quick Check ? Which of the following statements about cost behavior are true? Fixed costs per unit vary with the level of activity. Variable costs per unit are constant within the relevant range. Total fixed costs are constant within the relevant range. Total variable costs are constant within the relevant range.

    19. Mixed Costs

    20. Mixed Costs

    21. The Analysis of Mixed Costs

    22. Account Analysis & Engineering Estimates

    23. The Scattergraph Method

    24. Quick-and-Dirty Method

    25. Quick-and-Dirty Method

    26. WiseCo recorded the following production activity and maintenance costs for two months: Using these two levels of activity, compute: the variable cost per unit; the fixed cost; and then express the costs in equation form Y = a + bX. The High-Low Method

    29. Does this work for the low volume level, too? Test it!

    31. The Contribution Format

    32. The Contribution Format

    33. End of Chapter 5

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