Submit Search
Upload
10 Cost Behavior HIGH - LOW METHOD.ppt
•
Download as PPT, PDF
•
0 likes
•
44 views
Dr. Ahmed Hassan, PhD, DBA, PMP
Follow
10 Cost Behavior HIGH - LOW METHOD
Read less
Read more
Education
Report
Share
Report
Share
1 of 36
Download now
Recommended
cost12eppt_10.ppt
cost12eppt_10.ppt
AmitSarkar498752
Prilaku biaya
Prilaku biaya
noortia
Measurement of Cost Behavior.ppt
Measurement of Cost Behavior.ppt
Saleh Abdelraouf Hussien
Measurement of Cost Behavior.ppt
Measurement of Cost Behavior.ppt
hananafattah1
cost12eppt_07.ppt
cost12eppt_07.ppt
AmitSarkar498752
cost12eppt_08.ppt
cost12eppt_08.ppt
AmitSarkar498752
cost12eppt_03.ppt
cost12eppt_03.ppt
AmitSarkar498752
3 Cost-Volume Profit CVP.ppt
3 Cost-Volume Profit CVP.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
Recommended
cost12eppt_10.ppt
cost12eppt_10.ppt
AmitSarkar498752
Prilaku biaya
Prilaku biaya
noortia
Measurement of Cost Behavior.ppt
Measurement of Cost Behavior.ppt
Saleh Abdelraouf Hussien
Measurement of Cost Behavior.ppt
Measurement of Cost Behavior.ppt
hananafattah1
cost12eppt_07.ppt
cost12eppt_07.ppt
AmitSarkar498752
cost12eppt_08.ppt
cost12eppt_08.ppt
AmitSarkar498752
cost12eppt_03.ppt
cost12eppt_03.ppt
AmitSarkar498752
3 Cost-Volume Profit CVP.ppt
3 Cost-Volume Profit CVP.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
cost12eppt_04.ppt
cost12eppt_04.ppt
AmitSarkar498752
cost12eppt_04.ppt
cost12eppt_04.ppt
AdityaNugroho97
cost12eppt_15.ppt
cost12eppt_15.ppt
AmitSarkar498752
DETERMINING HOW COSTS BEHAVE
DETERMINING HOW COSTS BEHAVE
Umair Ahmed
cost12eppt_13.ppt
cost12eppt_13.ppt
AmitSarkar498752
cost12eppt_05.ppt
cost12eppt_05.ppt
AmitSarkar498752
cost12eppt_17.ppt
cost12eppt_17.ppt
AmitSarkar498752
Activity Analysis, Cost Behavior, and Cost Estimation .docx
Activity Analysis, Cost Behavior, and Cost Estimation .docx
bobbywlane695641
Activity Analysis, Cost Behavior, and Cost Estimation .docx
Activity Analysis, Cost Behavior, and Cost Estimation .docx
galerussel59292
12- taraget costing and pricing.ppt
12- taraget costing and pricing.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
Presentation1
Presentation1
Muhammad Asghar
horngren_ima16_stppt02.ppt
horngren_ima16_stppt02.ppt
LassaadBenMahjoub
Nce603 mod unit3
Nce603 mod unit3
MODASSAR ANSARI
lanen_5e_ch05_student.ppt
lanen_5e_ch05_student.ppt
SURAJITDASBAURI
Cost Accounting : Determining How Cost Behaves
Cost Accounting : Determining How Cost Behaves
mingxinlu
Chapter 13 breakeven analysis
Chapter 13 breakeven analysis
Bich Lien Pham
Chapter 13 breakeven analysis
Chapter 13 breakeven analysis
Bich Lien Pham
Poster - How to promove with water and waste price regulation
Poster - How to promove with water and waste price regulation
Entidade Reguladora dos Serviços de Águas e Resíduos (ERSAR)
cost12eppt_19.ppt
cost12eppt_19.ppt
AmitSarkar498752
Chapter 02 (lecture 01)
Chapter 02 (lecture 01)
Dr. Safaa Elagoury
Ch01.ppt
Ch01.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
Introduction_to_macro_economies.ppt
Introduction_to_macro_economies.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
More Related Content
Similar to 10 Cost Behavior HIGH - LOW METHOD.ppt
cost12eppt_04.ppt
cost12eppt_04.ppt
AmitSarkar498752
cost12eppt_04.ppt
cost12eppt_04.ppt
AdityaNugroho97
cost12eppt_15.ppt
cost12eppt_15.ppt
AmitSarkar498752
DETERMINING HOW COSTS BEHAVE
DETERMINING HOW COSTS BEHAVE
Umair Ahmed
cost12eppt_13.ppt
cost12eppt_13.ppt
AmitSarkar498752
cost12eppt_05.ppt
cost12eppt_05.ppt
AmitSarkar498752
cost12eppt_17.ppt
cost12eppt_17.ppt
AmitSarkar498752
Activity Analysis, Cost Behavior, and Cost Estimation .docx
Activity Analysis, Cost Behavior, and Cost Estimation .docx
bobbywlane695641
Activity Analysis, Cost Behavior, and Cost Estimation .docx
Activity Analysis, Cost Behavior, and Cost Estimation .docx
galerussel59292
12- taraget costing and pricing.ppt
12- taraget costing and pricing.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
Presentation1
Presentation1
Muhammad Asghar
horngren_ima16_stppt02.ppt
horngren_ima16_stppt02.ppt
LassaadBenMahjoub
Nce603 mod unit3
Nce603 mod unit3
MODASSAR ANSARI
lanen_5e_ch05_student.ppt
lanen_5e_ch05_student.ppt
SURAJITDASBAURI
Cost Accounting : Determining How Cost Behaves
Cost Accounting : Determining How Cost Behaves
mingxinlu
Chapter 13 breakeven analysis
Chapter 13 breakeven analysis
Bich Lien Pham
Chapter 13 breakeven analysis
Chapter 13 breakeven analysis
Bich Lien Pham
Poster - How to promove with water and waste price regulation
Poster - How to promove with water and waste price regulation
Entidade Reguladora dos Serviços de Águas e Resíduos (ERSAR)
cost12eppt_19.ppt
cost12eppt_19.ppt
AmitSarkar498752
Chapter 02 (lecture 01)
Chapter 02 (lecture 01)
Dr. Safaa Elagoury
Similar to 10 Cost Behavior HIGH - LOW METHOD.ppt
(20)
cost12eppt_04.ppt
cost12eppt_04.ppt
cost12eppt_04.ppt
cost12eppt_04.ppt
cost12eppt_15.ppt
cost12eppt_15.ppt
DETERMINING HOW COSTS BEHAVE
DETERMINING HOW COSTS BEHAVE
cost12eppt_13.ppt
cost12eppt_13.ppt
cost12eppt_05.ppt
cost12eppt_05.ppt
cost12eppt_17.ppt
cost12eppt_17.ppt
Activity Analysis, Cost Behavior, and Cost Estimation .docx
Activity Analysis, Cost Behavior, and Cost Estimation .docx
Activity Analysis, Cost Behavior, and Cost Estimation .docx
Activity Analysis, Cost Behavior, and Cost Estimation .docx
12- taraget costing and pricing.ppt
12- taraget costing and pricing.ppt
Presentation1
Presentation1
horngren_ima16_stppt02.ppt
horngren_ima16_stppt02.ppt
Nce603 mod unit3
Nce603 mod unit3
lanen_5e_ch05_student.ppt
lanen_5e_ch05_student.ppt
Cost Accounting : Determining How Cost Behaves
Cost Accounting : Determining How Cost Behaves
Chapter 13 breakeven analysis
Chapter 13 breakeven analysis
Chapter 13 breakeven analysis
Chapter 13 breakeven analysis
Poster - How to promove with water and waste price regulation
Poster - How to promove with water and waste price regulation
cost12eppt_19.ppt
cost12eppt_19.ppt
Chapter 02 (lecture 01)
Chapter 02 (lecture 01)
More from Dr. Ahmed Hassan, PhD, DBA, PMP
Ch01.ppt
Ch01.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
Introduction_to_macro_economies.ppt
Introduction_to_macro_economies.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_01.ppt
chapter_01.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
Moriarty_10ge_ppt_18.pptx
Moriarty_10ge_ppt_18.pptx
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_13.ppt
chapter_13.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_12.ppt
chapter_12.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_10.ppt
chapter_10.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_09.ppt
chapter_09.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_08.ppt
chapter_08.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_07.ppt
chapter_07.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_06.ppt
chapter_06.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_05.ppt
chapter_05.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_04.ppt
chapter_04.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_03.ppt
chapter_03.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_02.ppt
chapter_02.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
chapter_01.ppt
chapter_01.ppt
Dr. Ahmed Hassan, PhD, DBA, PMP
Moriarty_10ge_ppt_19.pptx
Moriarty_10ge_ppt_19.pptx
Dr. Ahmed Hassan, PhD, DBA, PMP
Advertising Management - ch08
Advertising Management - ch08
Dr. Ahmed Hassan, PhD, DBA, PMP
Advertising Management - ch06
Advertising Management - ch06
Dr. Ahmed Hassan, PhD, DBA, PMP
Advertising Management - ch05
Advertising Management - ch05
Dr. Ahmed Hassan, PhD, DBA, PMP
More from Dr. Ahmed Hassan, PhD, DBA, PMP
(20)
Ch01.ppt
Ch01.ppt
Introduction_to_macro_economies.ppt
Introduction_to_macro_economies.ppt
chapter_01.ppt
chapter_01.ppt
Moriarty_10ge_ppt_18.pptx
Moriarty_10ge_ppt_18.pptx
chapter_13.ppt
chapter_13.ppt
chapter_12.ppt
chapter_12.ppt
chapter_10.ppt
chapter_10.ppt
chapter_09.ppt
chapter_09.ppt
chapter_08.ppt
chapter_08.ppt
chapter_07.ppt
chapter_07.ppt
chapter_06.ppt
chapter_06.ppt
chapter_05.ppt
chapter_05.ppt
chapter_04.ppt
chapter_04.ppt
chapter_03.ppt
chapter_03.ppt
chapter_02.ppt
chapter_02.ppt
chapter_01.ppt
chapter_01.ppt
Moriarty_10ge_ppt_19.pptx
Moriarty_10ge_ppt_19.pptx
Advertising Management - ch08
Advertising Management - ch08
Advertising Management - ch06
Advertising Management - ch06
Advertising Management - ch05
Advertising Management - ch05
Recently uploaded
Final demo Grade 9 for demo Plan dessert.pptx
Final demo Grade 9 for demo Plan dessert.pptx
AvyJaneVismanos
Pharmacognosy Flower 3. Compositae 2023.pdf
Pharmacognosy Flower 3. Compositae 2023.pdf
Mahmoud M. Sallam
Computed Fields and api Depends in the Odoo 17
Computed Fields and api Depends in the Odoo 17
Celine George
ECONOMIC CONTEXT - LONG FORM TV DRAMA - PPT
ECONOMIC CONTEXT - LONG FORM TV DRAMA - PPT
iammrhaywood
Presiding Officer Training module 2024 lok sabha elections
Presiding Officer Training module 2024 lok sabha elections
anshu789521
Proudly South Africa powerpoint Thorisha.pptx
Proudly South Africa powerpoint Thorisha.pptx
thorishapillay1
Class 11 Legal Studies Ch-1 Concept of State .pdf
Class 11 Legal Studies Ch-1 Concept of State .pdf
akmcokerachita
Sanyam Choudhary Chemistry practical.pdf
Sanyam Choudhary Chemistry practical.pdf
sanyamsingh5019
Science 7 - LAND and SEA BREEZE and its Characteristics
Science 7 - LAND and SEA BREEZE and its Characteristics
KarinaGenton
Organic Name Reactions for the students and aspirants of Chemistry12th.pptx
Organic Name Reactions for the students and aspirants of Chemistry12th.pptx
VS Mahajan Coaching Centre
Enzyme, Pharmaceutical Aids, Miscellaneous Last Part of Chapter no 5th.pdf
Enzyme, Pharmaceutical Aids, Miscellaneous Last Part of Chapter no 5th.pdf
Sumit Tiwari
_Math 4-Q4 Week 5.pptx Steps in Collecting Data
_Math 4-Q4 Week 5.pptx Steps in Collecting Data
JhengPantaleon
Biting mechanism of poisonous snakes.pdf
Biting mechanism of poisonous snakes.pdf
adityarao40181
Kisan Call Centre - To harness potential of ICT in Agriculture by answer farm...
Kisan Call Centre - To harness potential of ICT in Agriculture by answer farm...
Krashi Coaching
Hybridoma Technology ( Production , Purification , and Application )
Hybridoma Technology ( Production , Purification , and Application )
Sakshi Ghasle
Science lesson Moon for 4th quarter lesson
Science lesson Moon for 4th quarter lesson
JericReyAuditor
Painted Grey Ware.pptx, PGW Culture of India
Painted Grey Ware.pptx, PGW Culture of India
Virag Sontakke
18-04-UA_REPORT_MEDIALITERAСY_INDEX-DM_23-1-final-eng.pdf
18-04-UA_REPORT_MEDIALITERAСY_INDEX-DM_23-1-final-eng.pdf
ssuser54595a
“Oh GOSH! Reflecting on Hackteria's Collaborative Practices in a Global Do-It...
“Oh GOSH! Reflecting on Hackteria's Collaborative Practices in a Global Do-It...
Marc Dusseiller Dusjagr
9953330565 Low Rate Call Girls In Rohini Delhi NCR
9953330565 Low Rate Call Girls In Rohini Delhi NCR
9953056974 Low Rate Call Girls In Saket, Delhi NCR
Recently uploaded
(20)
Final demo Grade 9 for demo Plan dessert.pptx
Final demo Grade 9 for demo Plan dessert.pptx
Pharmacognosy Flower 3. Compositae 2023.pdf
Pharmacognosy Flower 3. Compositae 2023.pdf
Computed Fields and api Depends in the Odoo 17
Computed Fields and api Depends in the Odoo 17
ECONOMIC CONTEXT - LONG FORM TV DRAMA - PPT
ECONOMIC CONTEXT - LONG FORM TV DRAMA - PPT
Presiding Officer Training module 2024 lok sabha elections
Presiding Officer Training module 2024 lok sabha elections
Proudly South Africa powerpoint Thorisha.pptx
Proudly South Africa powerpoint Thorisha.pptx
Class 11 Legal Studies Ch-1 Concept of State .pdf
Class 11 Legal Studies Ch-1 Concept of State .pdf
Sanyam Choudhary Chemistry practical.pdf
Sanyam Choudhary Chemistry practical.pdf
Science 7 - LAND and SEA BREEZE and its Characteristics
Science 7 - LAND and SEA BREEZE and its Characteristics
Organic Name Reactions for the students and aspirants of Chemistry12th.pptx
Organic Name Reactions for the students and aspirants of Chemistry12th.pptx
Enzyme, Pharmaceutical Aids, Miscellaneous Last Part of Chapter no 5th.pdf
Enzyme, Pharmaceutical Aids, Miscellaneous Last Part of Chapter no 5th.pdf
_Math 4-Q4 Week 5.pptx Steps in Collecting Data
_Math 4-Q4 Week 5.pptx Steps in Collecting Data
Biting mechanism of poisonous snakes.pdf
Biting mechanism of poisonous snakes.pdf
Kisan Call Centre - To harness potential of ICT in Agriculture by answer farm...
Kisan Call Centre - To harness potential of ICT in Agriculture by answer farm...
Hybridoma Technology ( Production , Purification , and Application )
Hybridoma Technology ( Production , Purification , and Application )
Science lesson Moon for 4th quarter lesson
Science lesson Moon for 4th quarter lesson
Painted Grey Ware.pptx, PGW Culture of India
Painted Grey Ware.pptx, PGW Culture of India
18-04-UA_REPORT_MEDIALITERAСY_INDEX-DM_23-1-final-eng.pdf
18-04-UA_REPORT_MEDIALITERAСY_INDEX-DM_23-1-final-eng.pdf
“Oh GOSH! Reflecting on Hackteria's Collaborative Practices in a Global Do-It...
“Oh GOSH! Reflecting on Hackteria's Collaborative Practices in a Global Do-It...
9953330565 Low Rate Call Girls In Rohini Delhi NCR
9953330565 Low Rate Call Girls In Rohini Delhi NCR
10 Cost Behavior HIGH - LOW METHOD.ppt
1.
CHAPTER 10 Determining How Costs
Behave
2.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-2 Cost Functions A cost function is a mathematical representation of how a cost changes with changes in the level of an activity relating to that cost Cost = f(x), x=activity level
3.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-3 Cost Terminology Variable Costs – costs that change in total in relation to some chosen activity or output Fixed Costs – costs that do not change in total in relation to some chosen activity or output Mixed Costs – costs that have both fixed and variable components; also called semi- variable costs
4.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-4 Cost Function Assumptions 1. Variations in the level of a single activity (the cost driver) explain the variations in the related total costs 2. Cost behavior is approximated by a linear cost function within the relevant range Graphically, the total cost versus the level of a single activity related to that cost is a straight line within the relevant rage
5.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-5 Bridging Accounting and Statistical Terminology Accounting Statistics Variable Cost Slope Fixed Cost Intercept Mixed Cost Linear Cost Function
6.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-6 The Linear Cost Equation y = a + bX The Dependent Variable: The cost that is being predicted The Independent Variable: The cost driver The Intercept: Fixed costs The Slope of the Line: Variable cost per unit
7.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-7 Fixed Cost Function, Graphically Total Cost Function: Y = $10,000 $- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 0 2000 4000 6000 8000 10000 12000
8.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-8 Variable Cost Function, Graphically Total Cost Function: Y = $5X $- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 0 2000 4000 6000 8000 10000 12000
9.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-9 Total Cost Function, Graphically Total Cost Function: Y = $10,000 + $5X $- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 0 2000 4000 6000 8000 10000 12000
10.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-10 Cost Functions Combined $- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 0 2000 4000 6000 8000 10000 12000 Variable Cost Y = $5X Fixed Cost Y = $10,000 Total Cost Y = $10,000 + $5X
11.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-11 Criteria for Classifying Variable and Fixed Components of a Cost 1. Choice of Cost Object – different objects may result in different classification of the same cost 2. Time Horizon – the longer the period, the more likely the cost will be variable 3. Relevant Range – behavior is predictable only within this band of activity
12.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-12 Cause and Effect as It Relates to Cost Drivers The most important issue in estimating a cost function is determining whether a cause-and- effect relationship exists between the level of an activity and the costs related to that level of activity.
13.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-13 Cause and Effect as It Relates to Cost Drivers A cause-and-effect relationship might arise as a result of: A physical relationship between the level of activity and costs A contractual agreement Knowledge of operations Note: a high correlation (connection) between activities and costs does not necessarily mean causality
14.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-14 Cost Estimation Methods 1. Industrial Engineering Method 2. Conference Method 3. Account Analysis Method 4. Quantitative Analysis Methods - High-Low Method - Regression Analysis
15.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-15 Industrial Engineering Method Estimates cost functions by analyzing the relationship between inputs and outputs in physical terms Includes time-and-motion studies Very thorough and detailed, but also costly and time consuming Also called the Work-Measurement Method
16.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-16 Conference Method Estimates cost functions on the basis of analysis and opinions about costs and their drivers gathered from various departments of a company Pools expert knowledge Reliance on opinions still makes this method subjective
17.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-17 Account Analysis Method Estimates cost functions by classifying various cost accounts as variable, fixed, or mixed with respect to the identified level of activity Is reasonably accurate, cost-effective, and easy to use, but is subjective
18.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-18 Qualitative Analysis Uses a formal mathematical method to fit cost functions to past data observations Advantage: results are objective
19.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-19 Steps in Estimating a Cost Function Using Quantitative Analysis 1. Choose the dependent variable (the cost to be predicted) 2. Identify the independent variable or cost driver 3. Collect data on the dependent variable and the cost driver 4. Plot the data 5. Estimate the cost function using the High-Low Method or Regression Analysis 6. Evaluate the cost driver of the estimated cost function
20.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-20 High-Low Method Simplest method of quantitative analysis Uses only the highest and lowest observed values
21.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-21 Steps in the High-Low Method 1. Calculate variable cost per unit of activity Variable Cost associated with Cost associated with Cost per = highest activity level highest activity level Unit of Activity Highest activity level - Lowest activity level { - }
22.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-22 Steps in the High-Low Method 2. Calculate Total Fixed Costs 3. Summarize by writing a linear equation Total Cost from either the highest or lowest activity level – (Variable Cost per unit of activity X Activity associated with above total cost) Fixed Costs Y = Fixed costs + ( Variable cost per unit of Activity * Activity ) Y = FC + (VCu * X)
23.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-23 1 2 3 4 5 6 Hours 350 250 440 750 650 550 Cost 5,200 5,000 6,700 9,500 7.700 7,000
24.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-24 -10,500 9,500 -9000 -6000 x x -7500 x -6000 x 5000 x -4500 -3000 -150 0 0 250 350 450 550 650 750
25.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-25 Regression Analysis Regression analysis is a statistical method that measures the average amount of change in the dependent variable associated with a unit change in one or more independent variables Is more accurate than the High-Low method because the regression equation estimates costs using information from all observations; the High-Low method uses only two observations
26.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-26 Types of Regression regression– estimates the relationship between the dependent variable and one independent variable Multiple – estimates the relationship between the dependent variable and two or more independent variables
27.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-27
28.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-28 Regression analysis output: Regression constant (a) Regression coefficient(s) (bi) Goodness of fit: R2 Standard erroe of the estimate
29.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-29 Terminology Goodness of Fit – indicates the strength of the relationship between the cost driver and costs Residual Term – measures the distance between actual cost and estimated cost for each observation
30.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-30 Criteria for Evaluating Alternative Cost Drivers 1. Economic Plausibility 2. Goodness of Fit 3. Significance of the Independent Variable
31.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-31 Nonlinear Cost Functions 1. Economies of Scale 2. Quantity Discounts 3. Step Cost Functions – resources increase in “lot- sizes,” not individual units 4. Learning Curves – labor hours consumed decrease as workers learn their jobs and become better at them 5. Experience Curve – broader application of learning curve that includes downstream activities including marketing and distribution
32.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-32 Types of Learning Curves Cumulative Average-Time Learning Model – cumulative average time per unit declines by a constant percentage each time the cumulative quantity of units produced doubles (e.g., 80% learning curve) Incremental Unit-Time Learning Model – incremental time needed to produce the last unit declines by a constant percentage each time the cumulative quantity of units produced doubles
33.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-33 The Ideal Database 1. The database should contain numerous reliably measured observations of the cost driver and the costs 2. In relation to the cost driver, the database should consider many values spanning a wide range
34.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-34 Data Problems The time period for measuring the dependent variable does not match the period for measuring the cost driver Fixed costs are allocated as if they are variable Data are either not available for all observations or are not uniformly reliable
35.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-35 Data Problems Extreme values of observations occur from errors in recording costs There is no homogeneous relationship between the cost driver and the individual cost items in the dependent variable-cost pool. A homogeneous relationship exists when each activity whose costs are included in the dependent variable (cost pool) has the same cost driver
36.
To accompany Cost
Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. 10-36 Data Problems The relationship between the cost driver and the cost is not stationary Inflation has affected costs, the driver, or both
Download now