This document discusses cost behavior analysis and the use of fixed and variable costs. It defines fixed and variable costs, explaining that total variable cost is proportional to activity level while total fixed cost remains constant. Variable cost per unit remains the same over a relevant range, while fixed cost per unit decreases as activity increases. Examples of variable costs include materials, labor, commissions. Fixed costs include depreciation, taxes, salaries. The proportion of fixed to variable costs differs between industries and there is a trend toward higher fixed costs as knowledge workers replace manual labor.
Standards are benchmarks used to measure performance. There are two main types of standards - quantity standards which specify the amount of input needed, and cost standards which specify the price of each input unit. Variances measure the difference between actual and standard performance, and are analyzed to identify issues. Direct materials and direct labor standards are set based on bills of materials, time studies, and efficiency goals. Price and quantity variances are calculated separately to analyze purchasing and production performance.
This document discusses flexible budgets and overhead analysis. It begins by explaining the advantages of flexible budgets over static budgets, noting that flexible budgets allow for "apples to apples" cost comparisons by showing costs that should have been incurred at the actual activity level. The document then provides an example of preparing a flexible budget for CheeseCo, calculating variable and fixed overhead costs across different activity levels. It concludes by discussing how to prepare a performance report using a flexible budget to analyze variances between budgeted and actual costs.
The document discusses cost-volume-profit (CVP) analysis and relationships. It covers several key topics:
1. It explains contribution margin and how it is used to cover fixed expenses and contribute to net operating income.
2. It demonstrates how to construct a CVP graph showing the relationships between sales volume, total costs, and profits.
3. It discusses using the contribution margin ratio to compute changes in contribution margin and net operating income from changes in sales volume.
This document discusses the differences between variable costing and absorption costing. Variable costing treats fixed manufacturing overhead costs as period expenses, while absorption costing allocates these costs to inventory. Absorption costing results in higher product costs and cost of goods sold, but lower net operating income compared to variable costing when production exceeds sales. The two methods will produce the same net income over multiple periods if production equals sales. Worked examples are provided to illustrate the calculations and reconcile the income statements under each method.
This document discusses manufacturing costs and their classification. It defines three basic manufacturing cost categories: direct materials, direct labor, and manufacturing overhead. It also distinguishes between product costs (direct materials, direct labor, manufacturing overhead) and period costs (selling costs, administrative costs). The document provides examples of costs that fall under each category and presents schedules for calculating cost of goods manufactured and cost of goods sold.
This document provides an overview of managerial accounting concepts including:
- The functions of management: planning, directing/motivating, and controlling
- Process management approaches like Lean Production, Theory of Constraints, and Six Sigma which aim to improve efficiency
- The role of management accountants in providing financial data to support planning/control and prepare financial statements
It does so through text explanations and diagrams across multiple pages.
Managerial Accounting Garrison Noreen Brewer Chapter 01Managerial Accounting ...Asif Hasan
This document discusses the key aspects of implementing an activity-based costing (ABC) system. It begins by explaining the five main ways ABC differs from traditional costing systems, such as assigning both manufacturing and non-manufacturing costs to products, using multiple cost pools, and basing overhead allocation on actual resource usage rather than budgeted activity. It then covers the steps to design an ABC system, including identifying activities and cost pools, tracing costs to activities, assigning costs to cost pools, calculating activity rates, and generating management reports. Examples are provided to illustrate how costs are traced and assigned to different cost pools at a sample company called Classic Brass.
Managerial Accounting Garrison Noreen Brewer Chapter 07Asif Hasan
This document provides an overview and comparison of absorption costing and variable costing methods. It includes examples calculating costs and income for a company under both methods. The key points are:
- Absorption costing includes an allocation of fixed overhead in product costs, while variable costing includes only variable costs in product costs.
- Absorption costing results in higher inventory values and cost of goods sold than variable costing.
- Variable costing produces consistent net operating income regardless of changes in production volume, while absorption costing results are affected by production volume.
- Reconciling the differences in net income between the two methods involves tracking the fixed overhead amounts included in or released from inventory.
Standards are benchmarks used to measure performance. There are two main types of standards - quantity standards which specify the amount of input needed, and cost standards which specify the price of each input unit. Variances measure the difference between actual and standard performance, and are analyzed to identify issues. Direct materials and direct labor standards are set based on bills of materials, time studies, and efficiency goals. Price and quantity variances are calculated separately to analyze purchasing and production performance.
This document discusses flexible budgets and overhead analysis. It begins by explaining the advantages of flexible budgets over static budgets, noting that flexible budgets allow for "apples to apples" cost comparisons by showing costs that should have been incurred at the actual activity level. The document then provides an example of preparing a flexible budget for CheeseCo, calculating variable and fixed overhead costs across different activity levels. It concludes by discussing how to prepare a performance report using a flexible budget to analyze variances between budgeted and actual costs.
The document discusses cost-volume-profit (CVP) analysis and relationships. It covers several key topics:
1. It explains contribution margin and how it is used to cover fixed expenses and contribute to net operating income.
2. It demonstrates how to construct a CVP graph showing the relationships between sales volume, total costs, and profits.
3. It discusses using the contribution margin ratio to compute changes in contribution margin and net operating income from changes in sales volume.
This document discusses the differences between variable costing and absorption costing. Variable costing treats fixed manufacturing overhead costs as period expenses, while absorption costing allocates these costs to inventory. Absorption costing results in higher product costs and cost of goods sold, but lower net operating income compared to variable costing when production exceeds sales. The two methods will produce the same net income over multiple periods if production equals sales. Worked examples are provided to illustrate the calculations and reconcile the income statements under each method.
This document discusses manufacturing costs and their classification. It defines three basic manufacturing cost categories: direct materials, direct labor, and manufacturing overhead. It also distinguishes between product costs (direct materials, direct labor, manufacturing overhead) and period costs (selling costs, administrative costs). The document provides examples of costs that fall under each category and presents schedules for calculating cost of goods manufactured and cost of goods sold.
This document provides an overview of managerial accounting concepts including:
- The functions of management: planning, directing/motivating, and controlling
- Process management approaches like Lean Production, Theory of Constraints, and Six Sigma which aim to improve efficiency
- The role of management accountants in providing financial data to support planning/control and prepare financial statements
It does so through text explanations and diagrams across multiple pages.
Managerial Accounting Garrison Noreen Brewer Chapter 01Managerial Accounting ...Asif Hasan
This document discusses the key aspects of implementing an activity-based costing (ABC) system. It begins by explaining the five main ways ABC differs from traditional costing systems, such as assigning both manufacturing and non-manufacturing costs to products, using multiple cost pools, and basing overhead allocation on actual resource usage rather than budgeted activity. It then covers the steps to design an ABC system, including identifying activities and cost pools, tracing costs to activities, assigning costs to cost pools, calculating activity rates, and generating management reports. Examples are provided to illustrate how costs are traced and assigned to different cost pools at a sample company called Classic Brass.
Managerial Accounting Garrison Noreen Brewer Chapter 07Asif Hasan
This document provides an overview and comparison of absorption costing and variable costing methods. It includes examples calculating costs and income for a company under both methods. The key points are:
- Absorption costing includes an allocation of fixed overhead in product costs, while variable costing includes only variable costs in product costs.
- Absorption costing results in higher inventory values and cost of goods sold than variable costing.
- Variable costing produces consistent net operating income regardless of changes in production volume, while absorption costing results are affected by production volume.
- Reconciling the differences in net income between the two methods involves tracking the fixed overhead amounts included in or released from inventory.
Managerial Accounting Garrison Noreen Brewer Chapter 10Asif Hasan
The document discusses static budgets and flexible budgets. A static budget is prepared for a single planned activity level and is difficult to use for performance evaluation when actual activity differs. A flexible budget can be prepared for multiple activity levels and allows for "apples-to-apples" cost comparisons at the actual activity level. The document provides an example of CheeseCo preparing both a static budget and flexible budget to evaluate performance when actual activity was lower than planned. Variances are identified to determine whether favorable cost variances were due to lower activity or good cost control.
Large businesses divide operations into responsibility centers to improve management control. Responsibility accounting provides financial information on resource usage and output for each center. Managers are evaluated on centers' performance. Centers include cost centers, which control costs but not revenues, profit centers controlling both, and investment centers controlling capital allocation. Traceable costs are directly assigned, while common costs apply to the whole business. Transfer prices set the cost when one division provides goods or services to another and impact each division's reported profits. Non-financial metrics also measure manager and center performance. Public companies report high-level financial data by business segment.
Operating income = $8,000
Oxco’s contribution margin ratio is 40
percent. If sales are $100,000 and break-
even sales are $80,000, what is operating
income?
What is our Margin of Safety?
This document discusses key concepts in management accounting including:
1) Accounting systems help identify authority over assets and support planning and decision making. Accounting reports provide monitoring, evaluation, and performance rewards.
2) Management accounting involves assigning decision making authority.
3) Costs are classified as product costs, which include direct materials, direct labor, and manufacturing overhead, or period costs like operating expenses.
4) Manufacturing overhead must be allocated to products using a predetermined overhead application rate based on an activity driver like machine hours.
- Plant and intangible assets are long-lived assets acquired for use in business operations, similar to long-term prepaid expenses. The cost is allocated to expense over the asset's useful life through depreciation.
- Major categories of plant assets include tangible assets like land, buildings, equipment, and furniture, as well as intangible assets without physical substance like patents and goodwill.
- Plant asset costs include acquisition costs and costs to prepare the asset for use, such as shipping, installation, and testing. Cost is allocated to the asset through depreciation expense over the asset's useful life.
The document discusses concepts related to quality management and the value chain. It defines the four components of the cost of quality as prevention costs, appraisal costs, internal failure costs, and external failure costs. The goal of quality management is to minimize all four cost categories and achieve zero defects. Total quality management aims to shift costs from internal and external failure categories to prevention and appraisal over time through continuous improvement. An example shows how measuring and reporting quality costs as a percentage of sales can help identify opportunities to reduce costs and improve quality.
Managerial Accounting Garrison Noreen Brewer Chapter 03Asif Hasan
The document describes job-order costing. It provides examples of companies that would likely use job-order costing, such as Boeing, Bechtel International, and Walt Disney Studios. It also contrasts job-order costing with process costing. Job-order costing traces and allocates costs to individual jobs/orders, while process costing assigns average costs per unit for a single product. The document includes examples of forms used in job-order costing, such as a materials requisition form, employee time ticket, and job cost sheet.
This document discusses inventory valuation methods including specific identification, average cost, FIFO, and LIFO. Examples are provided to illustrate how inventory and cost of goods sold transactions are recorded under each method. The key inventory accounting principles of consistency, physical inventory counts, obsolescence, and lower of cost or market are also overviewed.
Chapter 7: systems design: activity-based costing -- assigning overhead costs to products, plant wide overhead rate, departmental overhead rates, designing and abc system, hierarchy of activities, activity-based costing at classic brass, using activity-based costing, direct labor hours as base, computing activity rates, shifting to overhead costs, targeting process improvements, evaluation of activity-based costing, abc and service industries, cost flows in an abc system.
I apologize, upon further review I do not have enough information provided to fully solve part 2 of this exercise. The standard hours allowed and standard rate per hour are given, but the actual hours of input and actual rate per hour are not stated. Please provide those values and I will be happy to complete the variance analysis for the direct labor costs.
Management Accounting (Flexible budget)Abdul Basit
A flexible budget is a budget that adjusts or flexes for changes in the volume of activity. The flexible budget is more sophisticated and useful than a static budget, which remains at one amount regardless of the volume of activity.
The document discusses the statement of cash flows, which reports a company's cash inflows and outflows during an accounting period. It has three sections - operating, investing, and financing activities. The statement of cash flows helps investors understand a company's ability to generate cash flows, meet obligations, and need for external financing by reporting cash receipts, payments and transactions. It must be prepared using the direct or indirect method, with the direct method showing actual cash amounts for items like cash received from customers and cash paid to suppliers.
This document provides an overview of production costs, including:
1. It defines economic costs and profits, and distinguishes between explicit, implicit, accounting and economic costs.
2. It discusses short-run production costs like fixed, variable and total costs, and shows how average and marginal costs are derived from these.
3. It explores long-run production costs and how costs are affected by factors like returns to scale and indivisible inputs when expanding or contracting output levels.
Managerial Accounting Garrison Noreen Brewer Chapter 05Asif Hasan
This document discusses cost behavior analysis. It defines variable costs as costs that vary proportionally with changes in activity levels. Variable costs remain the same on a per-unit basis but change in total as activity changes. Fixed costs remain constant in total even as activity levels change, but fixed costs per unit decrease as activity increases. Examples of variable costs include materials and labor, while fixed costs include rent, insurance, and depreciation. The trend is for industries to have increasing fixed costs relative to variable costs as more tasks are automated.
This document contains excerpts from a chapter on cost behavior analysis from a business textbook. It discusses different types of costs including variable costs, fixed costs, and mixed costs. Variable costs fluctuate with changes in activity levels, while fixed costs remain constant despite changes in activity. The chapter defines relevant ranges for analyzing cost behavior, and provides examples of variable, fixed, and mixed costs from different business contexts to illustrate cost behavior concepts.
This document contains excerpts from a chapter on cost behavior analysis. It defines variable costs as costs that vary directly with activity levels and fixed costs as costs that remain constant despite changes in activity. Variable costs per unit remain constant within the relevant range, while total variable costs change proportionally with activity. Fixed costs remain constant in total for a given relevant range, but fixed costs per unit decrease as activity increases. The document provides examples of different types of costs, including mixed costs that have both fixed and variable components.
Total variable costs increase proportionally with activity level, while variable cost per unit remains constant. Total fixed costs remain the same as activity level changes, but fixed cost per unit decreases as activity increases. The document provides examples of variable costs like materials and labor, and fixed costs like depreciation and rent. It also discusses how the proportion of fixed to variable costs differs between industries and is trending upward overall.
This document provides an introduction to basic cost accounting terminology and concepts. It defines key terms like direct and indirect costs, variable and fixed costs, cost objects and cost flows. Direct costs can be traced to specific cost objects, while indirect costs are allocated. Variable costs change with activity levels, while fixed costs remain constant. Costs are classified and assigned to products and services. The purposes of cost accounting are to determine product costs, provide information for planning and control, and analyze costs to support decision making.
This document discusses cost behavior analysis. It begins by defining fixed and variable costs, explaining that variable costs change proportionally with activity level while fixed costs remain constant. Specific examples of variable and fixed costs are provided for different types of organizations. Mixed costs containing both fixed and variable components are introduced. The learning objectives are then outlined, including using scatter plots to diagnose cost behavior, analyzing mixed costs using the high-low method, and preparing income statements.
This document discusses cost behavior analysis. It explains that costs can be variable, fixed, or mixed. Variable costs change proportionally with activity level, while fixed costs remain constant. Mixed costs have both fixed and variable components. The document provides examples like cell phone bills and utility costs to illustrate different types of costs. It also discusses using scattergraph plots to diagnose whether a cost is variable or fixed based on its behavior over different activity levels. The overall purpose is to understand how to classify and analyze costs to predict how they will change with activity.
The document discusses different types of cost behavior including variable costs, fixed costs, and mixed costs. It provides examples of variable costs, fixed costs, and mixed costs for different types of organizations. Methods for analyzing mixed costs are presented, including the high-low method, scattergraph method, and least-squares regression method. The trends toward more fixed costs in organizations are also discussed.
Managerial Accounting Garrison Noreen Brewer Chapter 10Asif Hasan
The document discusses static budgets and flexible budgets. A static budget is prepared for a single planned activity level and is difficult to use for performance evaluation when actual activity differs. A flexible budget can be prepared for multiple activity levels and allows for "apples-to-apples" cost comparisons at the actual activity level. The document provides an example of CheeseCo preparing both a static budget and flexible budget to evaluate performance when actual activity was lower than planned. Variances are identified to determine whether favorable cost variances were due to lower activity or good cost control.
Large businesses divide operations into responsibility centers to improve management control. Responsibility accounting provides financial information on resource usage and output for each center. Managers are evaluated on centers' performance. Centers include cost centers, which control costs but not revenues, profit centers controlling both, and investment centers controlling capital allocation. Traceable costs are directly assigned, while common costs apply to the whole business. Transfer prices set the cost when one division provides goods or services to another and impact each division's reported profits. Non-financial metrics also measure manager and center performance. Public companies report high-level financial data by business segment.
Operating income = $8,000
Oxco’s contribution margin ratio is 40
percent. If sales are $100,000 and break-
even sales are $80,000, what is operating
income?
What is our Margin of Safety?
This document discusses key concepts in management accounting including:
1) Accounting systems help identify authority over assets and support planning and decision making. Accounting reports provide monitoring, evaluation, and performance rewards.
2) Management accounting involves assigning decision making authority.
3) Costs are classified as product costs, which include direct materials, direct labor, and manufacturing overhead, or period costs like operating expenses.
4) Manufacturing overhead must be allocated to products using a predetermined overhead application rate based on an activity driver like machine hours.
- Plant and intangible assets are long-lived assets acquired for use in business operations, similar to long-term prepaid expenses. The cost is allocated to expense over the asset's useful life through depreciation.
- Major categories of plant assets include tangible assets like land, buildings, equipment, and furniture, as well as intangible assets without physical substance like patents and goodwill.
- Plant asset costs include acquisition costs and costs to prepare the asset for use, such as shipping, installation, and testing. Cost is allocated to the asset through depreciation expense over the asset's useful life.
The document discusses concepts related to quality management and the value chain. It defines the four components of the cost of quality as prevention costs, appraisal costs, internal failure costs, and external failure costs. The goal of quality management is to minimize all four cost categories and achieve zero defects. Total quality management aims to shift costs from internal and external failure categories to prevention and appraisal over time through continuous improvement. An example shows how measuring and reporting quality costs as a percentage of sales can help identify opportunities to reduce costs and improve quality.
Managerial Accounting Garrison Noreen Brewer Chapter 03Asif Hasan
The document describes job-order costing. It provides examples of companies that would likely use job-order costing, such as Boeing, Bechtel International, and Walt Disney Studios. It also contrasts job-order costing with process costing. Job-order costing traces and allocates costs to individual jobs/orders, while process costing assigns average costs per unit for a single product. The document includes examples of forms used in job-order costing, such as a materials requisition form, employee time ticket, and job cost sheet.
This document discusses inventory valuation methods including specific identification, average cost, FIFO, and LIFO. Examples are provided to illustrate how inventory and cost of goods sold transactions are recorded under each method. The key inventory accounting principles of consistency, physical inventory counts, obsolescence, and lower of cost or market are also overviewed.
Chapter 7: systems design: activity-based costing -- assigning overhead costs to products, plant wide overhead rate, departmental overhead rates, designing and abc system, hierarchy of activities, activity-based costing at classic brass, using activity-based costing, direct labor hours as base, computing activity rates, shifting to overhead costs, targeting process improvements, evaluation of activity-based costing, abc and service industries, cost flows in an abc system.
I apologize, upon further review I do not have enough information provided to fully solve part 2 of this exercise. The standard hours allowed and standard rate per hour are given, but the actual hours of input and actual rate per hour are not stated. Please provide those values and I will be happy to complete the variance analysis for the direct labor costs.
Management Accounting (Flexible budget)Abdul Basit
A flexible budget is a budget that adjusts or flexes for changes in the volume of activity. The flexible budget is more sophisticated and useful than a static budget, which remains at one amount regardless of the volume of activity.
The document discusses the statement of cash flows, which reports a company's cash inflows and outflows during an accounting period. It has three sections - operating, investing, and financing activities. The statement of cash flows helps investors understand a company's ability to generate cash flows, meet obligations, and need for external financing by reporting cash receipts, payments and transactions. It must be prepared using the direct or indirect method, with the direct method showing actual cash amounts for items like cash received from customers and cash paid to suppliers.
This document provides an overview of production costs, including:
1. It defines economic costs and profits, and distinguishes between explicit, implicit, accounting and economic costs.
2. It discusses short-run production costs like fixed, variable and total costs, and shows how average and marginal costs are derived from these.
3. It explores long-run production costs and how costs are affected by factors like returns to scale and indivisible inputs when expanding or contracting output levels.
Managerial Accounting Garrison Noreen Brewer Chapter 05Asif Hasan
This document discusses cost behavior analysis. It defines variable costs as costs that vary proportionally with changes in activity levels. Variable costs remain the same on a per-unit basis but change in total as activity changes. Fixed costs remain constant in total even as activity levels change, but fixed costs per unit decrease as activity increases. Examples of variable costs include materials and labor, while fixed costs include rent, insurance, and depreciation. The trend is for industries to have increasing fixed costs relative to variable costs as more tasks are automated.
This document contains excerpts from a chapter on cost behavior analysis from a business textbook. It discusses different types of costs including variable costs, fixed costs, and mixed costs. Variable costs fluctuate with changes in activity levels, while fixed costs remain constant despite changes in activity. The chapter defines relevant ranges for analyzing cost behavior, and provides examples of variable, fixed, and mixed costs from different business contexts to illustrate cost behavior concepts.
This document contains excerpts from a chapter on cost behavior analysis. It defines variable costs as costs that vary directly with activity levels and fixed costs as costs that remain constant despite changes in activity. Variable costs per unit remain constant within the relevant range, while total variable costs change proportionally with activity. Fixed costs remain constant in total for a given relevant range, but fixed costs per unit decrease as activity increases. The document provides examples of different types of costs, including mixed costs that have both fixed and variable components.
Total variable costs increase proportionally with activity level, while variable cost per unit remains constant. Total fixed costs remain the same as activity level changes, but fixed cost per unit decreases as activity increases. The document provides examples of variable costs like materials and labor, and fixed costs like depreciation and rent. It also discusses how the proportion of fixed to variable costs differs between industries and is trending upward overall.
This document provides an introduction to basic cost accounting terminology and concepts. It defines key terms like direct and indirect costs, variable and fixed costs, cost objects and cost flows. Direct costs can be traced to specific cost objects, while indirect costs are allocated. Variable costs change with activity levels, while fixed costs remain constant. Costs are classified and assigned to products and services. The purposes of cost accounting are to determine product costs, provide information for planning and control, and analyze costs to support decision making.
This document discusses cost behavior analysis. It begins by defining fixed and variable costs, explaining that variable costs change proportionally with activity level while fixed costs remain constant. Specific examples of variable and fixed costs are provided for different types of organizations. Mixed costs containing both fixed and variable components are introduced. The learning objectives are then outlined, including using scatter plots to diagnose cost behavior, analyzing mixed costs using the high-low method, and preparing income statements.
This document discusses cost behavior analysis. It explains that costs can be variable, fixed, or mixed. Variable costs change proportionally with activity level, while fixed costs remain constant. Mixed costs have both fixed and variable components. The document provides examples like cell phone bills and utility costs to illustrate different types of costs. It also discusses using scattergraph plots to diagnose whether a cost is variable or fixed based on its behavior over different activity levels. The overall purpose is to understand how to classify and analyze costs to predict how they will change with activity.
The document discusses different types of cost behavior including variable costs, fixed costs, and mixed costs. It provides examples of variable costs, fixed costs, and mixed costs for different types of organizations. Methods for analyzing mixed costs are presented, including the high-low method, scattergraph method, and least-squares regression method. The trends toward more fixed costs in organizations are also discussed.
Marginal costing and absorption costing are two methods used to ascertain product costs. Marginal costing only includes variable costs in product costs, while absorption costing includes both fixed and variable costs. Key terms in marginal costing include variable costs, fixed costs, marginal costs, contribution, and break-even point. Formulas are provided to calculate metrics like profit-volume ratio, break-even point, margin of safety, and profits at different production levels using marginal cost principles. Limiting factors that can restrict growth, like material shortages or lack of capacity, are also discussed.
Activity Analysis, Cost Behavior, and Cost Estimation .docxgalerussel59292
The document discusses various methods for estimating cost behavior, including the account classification method, visual-fit method, and high-low method. The account classification method involves classifying each cost item as variable, fixed, or semivariable based on an analysis of ledger accounts and source documents. The visual-fit method involves plotting historical cost and activity data on a scatter diagram and fitting a line to estimate the cost behavior pattern. It can help analyze mixed or semivariable costs. The document also provides examples of how to use the visual-fit method to estimate fixed costs from the data.
This chapter discusses key cost accounting concepts and terminology. It defines costs, different types of costs like direct vs indirect and variable vs fixed costs. It explains how costs are assigned and traced to cost objects. It also distinguishes between inventoriable costs that are included in inventory balances and period costs that are expensed immediately. Finally, it illustrates how costs flow through a manufacturing company's production process and financial statements.
economics ppt for btech and basic introduction to engineeringCITDiplomaMadhyamgra
The document discusses key economic concepts related to costs and revenues for businesses. It defines variable costs as costs that change with production quantity, such as materials and labor, while fixed costs do not change. Marginal cost is the change in total cost from producing one more unit, and is used to determine the optimal production quantity where marginal cost equals marginal revenue. Marginal revenue is the change in total revenue from selling one more unit, and may decrease with higher production in imperfectly competitive markets as price must fall to sell additional units. Together, comparing marginal cost and marginal revenue helps businesses maximize profits.
The document discusses the concepts of economic costs, short-run production costs, and long-run production costs. It defines economic costs as the opportunity costs of resources used for production. Short-run costs are fixed for a given plant size, while long-run costs allow varying the plant size. The law of diminishing returns affects costs as more of a variable input is added. Economies and diseconomies of scale impact long-run average total costs. Minimum efficient scale is the smallest output level that minimizes average costs.
This document discusses the different types of costs involved in running a business: fixed costs, variable costs, and total costs. It provides examples of each type of cost for a fruit market business. Fixed costs remain the same regardless of production levels, like building rental costs. Variable costs change with production, like employee wages. Total costs are the sum of fixed and variable costs. The document encourages applying these cost concepts to create a cost analysis spreadsheet for a student-run business.
This document provides an overview of marginal costing. It begins with an introduction to marginal costing, defining it as a technique that differentiates between fixed and variable costs. It then covers key aspects of marginal costing including its meaning, features, advantages, and disadvantages. Examples of how marginal costing can be used for decision making are also provided. The document concludes with sections on absorption costing, the differences between marginal and absorption costing, contribution analysis, break-even analysis, and cost-volume-profit analysis.
Marginal costing is a technique that differentiates between fixed and variable costs. It involves ascertaining marginal cost by focusing only on the variable costs associated with increasing or decreasing output by one unit. Some key benefits of marginal costing include providing clearer insights into the impact of sales fluctuations on profitability and the relative profitability of different products. Marginal costing is useful for managerial decisions related to pricing, order acceptance, make-or-buy analysis, product mix selection, and other areas.
The document discusses cost behavior patterns and analysis. It defines variable and fixed costs, and how their total and per unit costs change with activity levels. Mixed costs that have both fixed and variable components are also examined. Methods for analyzing costs are presented, including account analysis, engineering estimates, high-low analysis, scattergraph analysis, and least squares regression. The contribution format income statement is introduced as a tool that emphasizes cost behavior for management decision making.
Internship report (e commerce industries in bangladesh and their services a s...Saif Mahmud
This Internship Report titled “E-Commerce Industries in Bangladesh and Their Services: A Study on Shohoj Limited.” has been submitted, to BRAC Business School, for partial
fulfillment of the requirements for the degree of Bachelor of Business Administration.
This document discusses relevant costs for decision making. It provides examples and definitions of relevant and irrelevant costs. Specifically, it addresses:
- Relevant costs are those that differ between alternatives being considered, while sunk costs and future costs that do not differ are irrelevant.
- A two-step process is outlined to identify relevant costs: 1) eliminate costs that do not differ between alternatives, 2) use the remaining differential costs to make the decision.
- An example is provided of a student, Cynthia, considering whether to drive or take the train to visit a friend. Various costs associated with each alternative are identified as relevant or irrelevant to her decision.
The document discusses segmentation and decentralization in organizations. It covers the benefits and disadvantages of decentralization, different types of responsibility centers (cost centers, profit centers, investment centers), and how to prepare segmented income statements using contribution margin and traceable/common fixed costs. Superior Foods Corporation is used as an example to illustrate different ways a company can segment its business (by geographic region, customer channel) and the various responsibility centers that exist in its organization.
This document discusses the process of budgeting for organizations. It explains that a budget is a quantitative plan for acquiring and using financial resources over a specified time period. Budgeting involves developing objectives and preparing budgets to achieve these objectives, while control involves steps taken by management to ensure the objectives are attained. Self-imposed or participative budgets created with input from all levels tend to be more accurate and motivate employees. The document outlines the components of a master budget and importance of budgeting for planning and control.
This document discusses the environment and culture of organizations. It defines the internal and external environments that organizations operate within, including the general environment, task environment, and internal environment. The general environment consists of economic, technological, sociocultural, political-legal and international forces. The task environment includes competitors, customers, suppliers, regulators and strategic partners. The internal environment includes owners, employees and organizational culture. The document also describes how organizations adapt to changes in their environments through strategies like information management, strategic responses, mergers and acquisitions, and organizational design flexibility.
Chapter 2 - Traditional and Contemporary Issues and ChallengesSaif Mahmud
The document discusses the history and evolution of management theory. It describes the Classical perspective involving scientific management and administrative management. Scientific management focused on improving individual worker efficiency while administrative management addressed managing the total organization. The Behavioral perspective emerged from the Hawthorne Studies and emphasized the importance of human behavior and social factors in organizations. This led to the development of fields like organizational behavior.
Management Principles and Practices - Ricky W. Griffin 11th Edition Chapter 01Saif Mahmud
Here are a few steps you could take as the new manager:
1. Schedule introductory meetings with each employee to learn about their roles and responsibilities, goals, and any ongoing projects or issues.
2. Meet with the previous manager to get a comprehensive overview of department operations, priorities, budgets, and any other important contextual information.
3. Observe group interactions and workflows for a period before initiating any changes to better understand the existing culture and dynamics.
4. Establish an open door policy and listen to employee feedback to identify opportunities for improvement from their perspectives.
5. Develop a transition plan with clear short-term goals and metrics to evaluate early progress and success in the new role.
The key
Executive Directors Chat Leveraging AI for Diversity, Equity, and InclusionTechSoup
Let’s explore the intersection of technology and equity in the final session of our DEI series. Discover how AI tools, like ChatGPT, can be used to support and enhance your nonprofit's DEI initiatives. Participants will gain insights into practical AI applications and get tips for leveraging technology to advance their DEI goals.
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
Denis is a dynamic and results-driven Chief Information Officer (CIO) with a distinguished career spanning information systems analysis and technical project management. With a proven track record of spearheading the design and delivery of cutting-edge Information Management solutions, he has consistently elevated business operations, streamlined reporting functions, and maximized process efficiency.
Certified as an ISO/IEC 27001: Information Security Management Systems (ISMS) Lead Implementer, Data Protection Officer, and Cyber Risks Analyst, Denis brings a heightened focus on data security, privacy, and cyber resilience to every endeavor.
His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
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How to Add Chatter in the odoo 17 ERP ModuleCeline George
In Odoo, the chatter is like a chat tool that helps you work together on records. You can leave notes and track things, making it easier to talk with your team and partners. Inside chatter, all communication history, activity, and changes will be displayed.
Thinking of getting a dog? Be aware that breeds like Pit Bulls, Rottweilers, and German Shepherds can be loyal and dangerous. Proper training and socialization are crucial to preventing aggressive behaviors. Ensure safety by understanding their needs and always supervising interactions. Stay safe, and enjoy your furry friends!
A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
Strategies for Effective Upskilling is a presentation by Chinwendu Peace in a Your Skill Boost Masterclass organisation by the Excellence Foundation for South Sudan on 08th and 09th June 2024 from 1 PM to 3 PM on each day.
Managers who understand how costs behave are better able to predict costs and make decisions under various circumstances. This chapter explores the meaning of variable, fixed, and mixed costs (the relative proportions of which define an organization’s cost structure). It also introduces a new income statement called the contribution approach.
Learning objective number 1 is to understand how fixed and variable costs behave and how to use them to predict costs.
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We discussed this table in an earlier chapter. Let’s concentrate on variable costs in total. Recall that total variable cost is proportional to the activity level within the relevant range. As activity increases, total variable cost increases, and as activity decreases, total variable cost decreases.
An activity base (also called a cost driver) is a measure of what causes the incurrence of variable costs. As the level of the activity base increases, the total variable cost increases proportionally. Units produced (or sold) is not the only activity base within companies. A cost can be considered variable if it varies with activity bases such as miles driven, machine hours, or labor hours.
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As an example of an activity base, consider your total long distance telephone bill. The activity base is the number of minutes that you talk. A true variable cost is one whose total dollar amount varies in direct proportion to changes in the level of activity. On your land-line, your total long distance telephone bill is determined by the number of minutes you talk. An activity base, or cost driver, is a measure of what causes the incurrence of variable costs. As the level of activity base increases, the variable cost increases proportionally.
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On a per unit basis, variable costs remain the same over a wide range of activity.
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A variable cost remains constant if expressed on a per unit basis. Referring to the telephone example, the cost per minute talked is constant (e.g., 10 cents per minute).
A public utility has huge investments in property, plant and equipment, so it will tend to have fewer variable costs than a less capital intensive industry. In contrast, a merchandising company usually has a high proportion of variable costs like cost of goods sold. Service companies, like law firms and CPA firms, also tend to have a high proportion of variable costs.
Here are some examples of variable costs that are likely present in many types of businesses.
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Recall that we previously stated that true variable costs vary directly and proportionately with changes in activity. Direct material is an example of a cost that behaves in a true variable pattern. Now let’s look at what are known as step-variable costs.
A step variable cost remains constant within a narrow range of activity, so it tends to look like a fixed cost. Maintenance workers are often considered to be a variable cost, but this labor cost does not behave as a true variable cost. For example, fairly wide changes in the level of production will cause a change in the number of maintenance workers employed, thereby increasing the total maintenance cost.
For a step-variable cost, total cost increases to a new higher level when we reach the next higher range of activity. For example, a maintenance worker is obtainable only as a whole person who is capable of working approximately two thousand hours per year.
Only fairly wide changes in the level of activity will cause a change in a step-variable cost. Maintenance workers are obtainable only in large chunks of a whole person who is capable of working approximately two thousand hours a year.
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Part I
Economists correctly point out that many costs that accountants classify as variable costs actually behave in a curvilinear fashion.
Part II
In many important decisions, accountants tend to treat costs as linear in nature.
Part III
As long as the company is operating within the relevant range of activity, the accountant’s approximation of the economist’s curvilinear cost function seems to work quite well.The relevant range is the range of activity within which the assumptions made about cost behavior are valid.
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Now, let’s look at fixed costs. Total fixed costs remain constant within the relevant range of activity.
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If you have a land-line in your home, you pay a flat connection fee that is the same every month. This fee is fixed because it does not change in total regardless of the number of calls made.
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Finally, fixed cost per unit decreases as activity level goes up.
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As you make more and more local calls, the connection fee cost per call decreases. If your connection fee is $15 and you make one local call per month, the average connection fee is $15 per call. However, if you make 100 local calls per month, the average connection fee drops to 15¢ per call.
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Part I
One type of fixed cost is known as committed fixed costs. These are long-term fixed costs that cannot be significantly reduced in the short term. Some examples include depreciation on manufacturing facilities and real estate taxes on factory property.
Part II
Another type of fixed cost is known as discretionary fixed costs. These fixed costs may be altered in the short-term by current management decisions. Some examples of discretionary fixed costs include advertising and research and development costs.
Part I
In many industries, we see a trend toward greater fixed costs, relative to variable costs. In the past fifteen years, we have seen computers and robotics take over many mundane tasks previously performed by humans.
Part II
In today’s world economy, knowledge workers are in demand for their experience and knowledge rather than their muscle. Most knowledge workers tend to be salaried, highly trained and very difficult to replace. The cost of these valued employees tends to be fixed rather than variable.
In much of Europe, China, and Japan, management has little flexibility in adjusting the size of the labor force. Labor costs tend to be viewed as more fixed than variable. In recent years, we have seen some changes in management’s flexibility.
In the U.S. and United Kingdom, management has much greater latitude to adjust the size of the labor force. Labor costs in some industries are still viewed as more variable than fixed.
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Fixed costs only stay constant in total within the relevant range of activity. As we adjust the relevant range of activity upward or downward, we see changes in total fixed costs. These upward or downward adjustments are generally very wide.
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An example of changes in total fixed costs might be rent for office space. A company can rent 1,000 square feet of office space for $30,000 per year. If the company fills its current space and needs additional office space, the next 1,000 square feet will cost an additional $30,000 per year. So when a company needs 1,000 square feet of office space, the fixed office rent is $30,000. If another 1,000 square feet are needed, the fixed office rent will be $60,000.
The question becomes, how do changes in fixed costs outside the relevant range differ from step-variable costs? While this step-function pattern appears similar to the idea of step-variable costs, there are two important differences between step-variable costs and fixed costs. First, step-variable costs can often be adjusted quickly as conditions change, whereas fixed costs cannot be changed easily. The second difference is that the width of the steps for fixed costs is wider than the width of the steps for step-variable costs. For example, a step-variable cost such as maintenance workers may have steps with a width of 40 hours a week. However, fixed costs may have steps that have a width of thousands or tens of thousands of hours of activity.
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See how you do on this question. There can be more than one correct answer. Be careful and take your time.
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Number 4 is not correct because total variable costs increase as activity increases within the relevant range and decrease as activity decreases within the relevant range.
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A mixed cost has both a fixed and variable element.
If you pay your utility bill, you know that a portion of your total bill is fixed. This is the standard monthly utility charge. The variable portion of your utility costs depends upon the number of kilowatt hours you consume. In other words, your total utility bill has both a fixed and variable element.
The graph demonstrates the nature of a normal utility bill.
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The mixed cost line can be expressed with the equation Y = A + B*X. This equation should look familiar, from your algebra and statistics classes.
In the equation, Y is the total mixed cost; A is the total fixed cost (or the vertical intercept of the line); B is the variable cost per unit of activity (or the slope of the line), and X is the actual level of activity.
In our utility example, Y is the total mixed cost; A is the total fixed monthly utility charge; B is the cost per kilowatt hour consumed, and X is the number of kilowatt hours consumed.
Part I
Read through this short question to see if you can calculate the total utility bill for the month.Part II
The total bill is $100. How did you do?
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We can analyze mixed costs by looking at each account and classifying the cost as variable, fixed or mixed based on the cost behavior over time.
A more sophisticated way to analyze the nature of a cost is to ask our engineers to evaluate each cost in terms of production methods, material requirements, labor usage and overhead.
Learning objective number 2 is to use a scattergraph plot to diagnose cost behavior.
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A scattergraph plot is a quick and easy way to isolate the fixed and variable components of a mixed cost.The first step is to identify the cost, which is referred to as the dependent variable, and plot it on the Y axis. The activity, referred to as the independent variable, is plotted on the X axis.
If the plotted dots do not appear to be linear, do not analyze the data any further. If there does appear to be a linear relationship between the level of activity and cost, we will continue our analysis.
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Next, we draw a straight line where, roughly speaking, an equal number of points reside above and below the line. Make sure that the straight line goes through at least one data point on the scattergraph.
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Part I
Where the straight line crosses the Y axis determines the estimate of total fixed costs. In this case, the fixed costs are $10,000.
Part II
Next, select one data point to estimate the variable cost per patient day. In our example, we used the first data point that was on the straight line. From this point, we estimate the total number of patient days and the total maintenance cost. Part III
Our estimate of the total number of patient days at this data point is 800, and the estimate of the total maintenance cost is $11,000. We will use this information to estimate the variable cost per patient day.
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Part I
The calculations include:
Subtract the fixed cost from the total estimated cost for 800 patient days. We arrive at an estimate of the total variable cost for 800 patients of $1,000.
Part II
Divide the total variable cost by the 800 patients, which yields a variable cost per patient day of $1.25. We can use this information to complete our basic cost equation.
Part III
Our maintenance cost equation tells us that the Y, the total maintenance cost, is $10,000, the total fixed cost, plus $1.25 times X, the number of patient days.
Learning objective number 3 is to analyze a mixed cost using the high-low method.
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The high-low method can be used to analyze mixed costs, if a scattergraph plot reveals an approximately linear relationship between the X and Y variables. We will use the data shown in the Excel spreadsheet to determine the fixed and variable portions of maintenance costs. We have collected data about the number of hours of maintenance and total cost incurred.Let’s see how the high-low method works.
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Part II
The first step in the process is to identify the high level of activity and its related total cost and the low level of activity with its related total cost. You can see that the high level of activity is 800 hours with a cost of $9,800 dollars. The low level of activity is 500 hours with a related total cost of $7,400.
Part II
Now, we subtract the low level of activity from the high level and do the same for the costs we have identified. In our case, the change in level of activity and cost is 300 hours and $2,400, respectively.
The variable cost per unit of activity is determined by dividing the change in total cost by the change in activity. For our maintenance example, we divide $2,400 by 300 and determine that the variable cost per hour of maintenance is $8.00.
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Part I
Here is the equation we will use to calculate total fixed cost.
Part II
We can substitute known data to estimated total fixed cost. We know that at 800 hours of maintenance, total cost is $9,800. We just calculated the variable cost per unit of activity at $8. So we will multiply the 800 hours of activity times the $8 variable rate per unit.
Part III
By solving the equation, we see that total fixed cost is equal to $3,400. We can now construct an equation to estimate total maintenance cost at any level of activity within the relevant range.
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Our basic equation of Y is equal to $3,400 (our total fixed cost) plus $8 times the actual level of activity.
You can verify the equation by calculating total maintenance costs at 500 hours, the low level of activity. It will be worth your time to make the calculation.
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See if you can apply what we have just discussed to determine the variable portion of sales salaries and commissions for this company.
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The correct answer is 10 cents per unit.
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Using the same data, calculate the total fixed cost portion of sales salaries and commissions.
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The calculation of the answer is a bit more complex, but we see that total fixed cost equals $2,000.
The least-squares regression method is a more sophisticated approach to isolating the fixed and variable portion of a mixed cost. This method uses all of the data points to estimate the fixed and variable cost components of a mixed cost. This method is superior to the scattergraph plot method that relies upon only one data point and the high-low method that uses only two data points to estimate the fixed and variable cost components of a mixed cost. The basic goal of this method is to fit a straight line to the data that minimizes the sum of the squared errors. The regression errors are the vertical deviations from the data points to the regression line.
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The formulas that are used for least-squares regression are complex. Fortunately, computer software can perform the calculations, quickly. The observed values of the X and Y variables are entered into the computer program and all necessary calculations are made. In the appendix to this chapter, we show you how to use Microsoft Excel to complete a least-squares regression analysis.
Output from the regression analysis can be used to create the equation that enables us to estimate total costs at any activity level. The key statistic to examine when evaluating regression results is called R squared, which is a measure of the goodness of fit.
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The R square value can range from 0% to 100%. The higher the percentage, the better the fit.
The three methods we discussed for isolating the fixed and variable portions of a mixed cost yield slightly different results. The most accurate estimate is provided by the least-squared regression method. Less accurate results are usually associated with the scattergraph. The high-low method provides results that fall somewhere in the middle of the other two methods.
Learning objective number 4 is to prepare an income statement using the contribution format.
The contribution approach provides an income statement format geared directly to cost behavior, which has been the focus of discussion in this chapter.
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The contribution approach separates costs into fixed and variable. Sales minus variable costs equals contribution margin. The contribution margin minus fixed costs equals net operating income.
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This approach is used as an internal planning and decision-making tool, and will be discussed further in the chapters shown on your screen.
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The contribution format allocates costs based on cost behavior. The contribution approach differs from the traditional approach covered in Chapter 2. The traditional approach organizes costs in a functional format. Costs relating to production, administration and sales are grouped together without regard to their cost behavior. The traditional approach is used primarily for external reporting purposes.
In this appendix, we will show you how to use Microsoft Excel to determine the key variable necessary for least-squares regression. As you have seen, we need three pieces of information: the estimated variable cost per unit (the slope of the line), the estimated fixed cost (the intercept), and R squared.
Let’s get started. I think you will find that using Microsoft Excel is quite easy.
Learning objective number 5 is to analyze a mixed cost using the least-squares regression method.
Matrix, Inc. has gathered 15 month’s of information concerning the number of meals prepared and the total cost of preparing them each month. We will use this data in our least-squares regression model. Using Microsoft Excel, we will estimate the variable and fixed cost components of the total meals cost.
To gather the three pieces of information we need, we will use three special functions in Excel. These functions are named LINEST, INTERCEPT, and RSQ. LINEST provides us with the slope of the line, INTERCEPT gives us the fixed cost intercept, and RSQ yields the R squared value.
Load Excel on your computer and enter the data shown in the table on the right side of your screen. Start with the headings in cell B3, C3, and D3. Enter the months in column B, the total cost in column C, and the number of meals in column D. When finished entering this data, go to the next screen.
We will place the slope of the line in cell F4, so place your cursor in cell F4 and press the equal key. Look to the left of your screen and you will see the special functions drop-down menu. Click on the down arrow to the right of the special functions tab and scroll down to select more functions.
Use the Or select a category option to select statistical. Once statistical is selected, move to the select a function window and scroll down until you find SLOPE. Click on SLOPE.
The Function Arguments window will pop-up for SLOPE. The first blank space is for Known underscore y’s. We want to enter the total cost for each month in this space. To do this, click on cell C4, hold down the mouse button and drag down to cell C19. Now, release the mouse button and C4 colon C19 will appear in the first space. We have now entered the total cost.
Move your cursor down to the second space named Known underscore x’s. We want to enter the number of meals prepared in this space. Click on cell D4, hold down the mouse button and drag down to cell D19. Release the mouse button and you have entered the number of meals.
Look at the bottom of your screen to locate the 2.77. This is the estimate of the slope of the line. Now look at your cell F4 and make sure it looks just like the cell contents on this screen. If you have 2.77 and your cell F4 looks like the one on your screen, press the enter key. You have calculated the slope of the line, which is the first piece of vital information.
Move your cursor to cell F5 and press the equal key. Return to the special functions area and click on the down arrow. The statistical function should now be selected. Scroll the select a function window until you find INTERCEPT. Click on INTERCEPT to select this function.
Part I
Once again, we are asked to enter the Known underscore y’s and x’s. Follow the same procedures we used earlier to enter the total cost values in the Known underscore y’s and the number of meals in the Known underscore x’s spaces.
Part II
Notice that Excel has already calculated the estimated fixed costs at $2,618.72. If you find this amount and your cell F5 looks like the one on the screen, press the enter key. You have just determined the fixed cost intercept, which is the second piece of information needed.
Move your cursor to cell F6, press the equal key, and select the special functions section of Excel. You are already in statistical, so scroll until you find the special function RSQ (or R squared). Click on RSQ and you are ready to enter the necessary data.
Part I
Once again, the function arguments window asks you to enter the Known underscore y’s and x’s. Follow the same procedure to enter total cost in the Known underscore y’s and the number of meals in the Known underscore x’s.
Part II
Look in the arguments window and notice that the R squared is equal to 93.3%. That is an excellent R squared. If you calculated this value for R squared and your cell F6 looks like the one on your screen, press the enter key. You have now completed gathering all the information necessary.Using Excel to solve a least-squares regression problem is very easy. It is very important that you understand the output from these special functions.