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IENG 216

IENG 216. Overhead. Accounting Equation. Owner Equity = Assets - Liabilities. Cost Behavior & Flexible Budgeting. Mixed costs are a function of fixed & variable costs Cost-Volume formula Y = a + bx where Y = mixed cost to break up x = a measure of activity (machine hrs)

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IENG 216

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  1. IENG 216 Overhead

  2. Accounting Equation Owner Equity = Assets - Liabilities

  3. Cost Behavior & Flexible Budgeting • Mixed costs are a function of fixed & variable costs Cost-Volume formula Y = a + bx where Y = mixed cost to break up x = a measure of activity (machine hrs) a = fixed cost component b = variable rate per unit x

  4. High-Low Method Suppose we have the following:

  5. High-Low Method X Y High 280 2480 Low 190 2330 Difference 90 150 Variable rate = 150/90 = $1.67 per DLH

  6. High-Low Method Fixed Cost Portion Total Mixed - Variable = $2,480 - 1.67(280) = $2,012

  7. High-Low Method Fixed Cost Portion Total Mixed - Variable = $2,480 - 1.67(280) = $2,012 Total Mixed Cost = $2,012 + 1.67 X

  8. Least Squares

  9. Least Squares Y = $1,900.27 + 3.054 x

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