Ab.az Chapter06S

7/23/2019 Ab.az Chapter06S

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Copyright 2009 by The McGraw-Hill Companies, Inc. llMcGraw-Hill#Irwin

Chapter 6

Activity Analysis,Cost Behavior,

and Cost

Estimation


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LearningObjective

1


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Costprediction

Using knoledgeo! cost behavior

to !orecastlevel o! cost at

a partic"laractivity# $oc"sis on the !"t"re#

%ntrod"ction%ntrod"ction

Costbehavior

&elationshipbeteencost andactivity#

'rocess o!determining

cost behavior,o!ten !oc"singon historical

data#

Costestimation


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LearningObjective

(


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*ariable Cost 'er Unit E+ample*ariable Cost 'er Unit E+ample

-"mber o! 'ay 'er

*ie shos atched

Costper

'ay'er*ie

sho

)he cost per 'ay 'er *ie sho is constant# $ore+ample, ./#0 per sho#


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2tep3*ariable Costs2tep3*ariable Costs

Activity

Co

st

Total cost remainsconstant within anarrow range of

activity.


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)otal $i+ed Cost E+ample)otal $i+ed Cost E+ample

o"r monthly basic cable )* bill probably does notchange no matter ho many ho"rs yo" atch#

-"mber o! ho"rs atched

4onth

lyBasic

Cab

leBill


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$i+ed Cost 'er Unit E+ample$i+ed Cost 'er Unit E+ample

-"mber o! ho"rs atched4onthlyBasiccableBill

perho"

ratched

)he average cost per ho"r decreases as more ho"rsare spent atching cable television#


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Ren

tCostin

Thousan

dsofDollars

0 1,000 ,000 !,000Rented Area "#$uare %eet&

!0

'0

(0

)otal cost doesn5t change !or aide range o! activity,

and then j"mps to a ne higher cost !or the ne+thigher range o! activity#

2tep3$i+ed Costs2tep3$i+ed Costs


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%i)ed *onthly

+tility Charge

ariable

+tility Charge

Activity "-ilowatt ours&

Total+tilityCost

Total

semi

variableco

st

2emivariable Cost2emivariable Cost#lope is

variable costper unit

of activity.


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C"rvilinear CostC"rvilinear CostC"rvilinear

Cost $"nction

Relevant Range

Activity

TotalCos

t

C"rvilinear

Cost $"nction

A straight/line"constant unit

variable cost& closelyappro)imates a

curvilinear line withinthe relevant range.


13/23Copyright 2009 by The McGraw-Hill Companies, Inc. llMcGraw-Hill#Irwin

LearningObjective


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C"rvilinear CostC"rvilinear CostC"rvilinear

Cost $"nction

Relevant Range

Activity

TotalCos

t

C"rvilinear

Cost $"nction

A straight/ine"constant unit

variable cost& closelyappro)imates a

curvilinear line withinthe relevant range.


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Engineered, Committed andEngineered, Committed and

7iscretionary Costs7iscretionary CostsDiscretionary

*ay be altered in theshort term by currentmanagerial decisions.

Committed

ong/term, cannot bereduced in the short

term.

ngineered

2hysical relationship

with activity measure.

Depreciation on3uildings and

e$uipment

Advertising andResearch andDevelopment

Direct*aterials



LearningObjective


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Acco"nt Classi!ication 4ethodAcco"nt Classi!ication 4ethod

Cost estimates are based on areview of each account ma4ing up

the total cost being analy5ed.


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Visual-Fit Method

ertical distanceis total cost,

appro)imately61',000.

0 1 ! 7

8

TotalCostin

1,0

00

9sofDollar

s

10

0

0

888

88

88

8

8

Activity, 1,0009s of +nits 2roduced

stimated fi)ed cost : 610,000

A scatter diagram o! past cost behavior

may be help!"l in analy8ing mi+ed costs#


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OlCo recorded the !olloing prod"ction activity andmaintenance costs !or to months9

Using these to levels o! activity, comp"te9

the variable cost per "nit#the total !i+ed cost#

)he :igh3Lo 4ethod)he :igh3Lo 4ethod


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+nits Cost.igh activity level (,000 (,;006

ow activity level



LearningObjective

cont#, 6 and ;can be !o"nd in

the )e+t Book


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End o! Chapter 6End o! Chapter 6

Ab.az Chapter06S

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