1 / 31

Chapter 3 - Activity Cost Behaviour

. . . Learning Objectives. Define and describe cost behaviour and explain the role of the resource usage model in understanding cost behaviour.Separate mixed costs into their fixed and variable components using the high-low method, the scatterplot method, and the method of least squares.Evaluate t

omer
Download Presentation

Chapter 3 - Activity Cost Behaviour

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

    1. Chapter 3 - Activity Cost Behaviour

    2. Define and describe cost behaviour and explain the role of the resource usage model in understanding cost behaviour. Separate mixed costs into their fixed and variable components using the high-low method, the scatterplot method, and the method of least squares. Evaluate the reliability of a cost equation. Explain the role of multiple regression in assessing cost behaviour. Describe the use of managerial judgement in determining cost behaviour.

    3. Basic Terms - 1 Activity capacity: the ability to perform activities Practical capacity: the efficient level of activity performance Resources: economic inputs that are consumed in performing activities Resource spending: the cost of acquiring capacity to perform an activity Resource usage: the amount of activity capacity used in producing the activity output

    4. Basic Terms - 2 Resources supplied as used and needed: these are resources that are acquired from outside sources, where the terms of acquisition do not require any long-term commitment for any given amount of the resource. Examples: materials & energy Resources supplied in advance of usage: these are resources acquired by the use of either an explicit or implicit contract to obtain a given quantity of resource, regardless of whether the quantity of the resource available is fully used or not.

    5. Cost Behaviour

    6. Total versus Average Variable Cost Example: Suppose that Porter Pottery Company makes mugs. Each mug requires 1/4kg. of clay at $2 per kg. If Porter manufactures 5,000 mugs, the total cost of clay is $2,500 (5,000 x $2 x .25). If Porter manufactures 10,000 mugs, total cost of clay is $5,000 (10,000 x $2 x .25). The average cost of clay per mug stays at $0.50 (.25 x 2) no matter how many mugs are made.

    7. Total versus Average Variable Cost Total Variable Cost Cost TVC = $.5X $5,000 $2,500 5,000 10,000 Mugs

    8. Total versus Average Variable Cost (continued) Average Variable Cost Cost $0.50 AVC = $0.50 5,000 10,000 Mugs

    9. Total Fixed versus Average Fixed Cost Total Fixed Cost Cost $1,500 Year 2 $1,000 Year 1 $500 Activity Level

    10. Total Fixed versus Average Fixed Cost (continued) Total versus Average Fixed Cost Cost TFC AFC Activity Level

    11. The Behaviour of Mixed Costs

    12. Step Variable Costs

    13. Types of Fixed Costs Committed Fixed Costs Discretionary Fixed Costs Step Fixed Costs

    14. Step Fixed Costs

    15. Methods for Separating Mixed Cost Into Fixed and Variable Components The High-Low Method Scatterplot Method The Method of Least Squares

    16. Mixed Costs: An Example

    17. The High-Low Method

    18. Scatterplot Method

    19. The Method of Least Squares

    20. The Method of Least Squares: Goodness of Fit

    22. Cost Behaviour and Managerial Judgement

    23. Numerical Questions from back of chapters 2 and 3 W2-3, E2-9, P2-1, P2-9 W3-3, E3-9, P3-1

    24. Question W2-3 Please go to your text to read this question.

    25. Question E2-9 Please go to your text to read this question.

    26. Question P2-1 Please go to your text to read this question.

    27. Question P2-9 Please go to your text to read this question.

    28. Question W3-3 Please go to your text to read this question.

    29. Question E3-9 Please go to your text to read this question.

    30. Question P3-1 Please go to your text to read this question.

    31. The End

More Related