Managerial Accounting_ch._3_text-notes_horngren_et._al._14e

Managerial Accounting_ch._3_text-notes_horngren_et._al._14e...

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Unformatted text preview: The following notes are from ancillary materials for Introduction to Management Accounting, 14 th . edition (Chapters 1-14), by Charles T. Horngren, Gary L. Sundem, William O. Stratton, David Burgstahler, and Jeff Schatzberg, Pearson Prentice Hall, U.S., 2008. Chapter 3 Measurement of Cost Behavior LEARNING OBJECTIVES: When your students have finished studying this chapter, they should be able to: 1. Describe step- and mixed-cost behavior. 2. Explain management influences on cost behavior. 3. Measure and mathematically express cost functions and use them to predict costs. 4. Describe the importance of activity analysis for measuring cost functions. 5. Measure cost behavior using the engineering analysis, account analysis, high-low, visual-fit, and least-squares regression methods. 1 CHAPTER 3: OUTLINE I. Cost Drivers and Cost Behavior Accountants and managers assume that cost behavior is linear over some relevant range of activities or change in cost drivers. Linear-Cost Behavior - graphed with a straight line when a cost changes proportionately with changes in a single cost driver. Volume of a product produced or service provided is the primary driver for some costs (e.g., printing labor, ink, paper, and binding costs of producing the textbook). Other costs are more affected by activities not directly related to volume and often have multiple cost drivers. These costs are not easily identified with or traced to units of output (e.g., the salaries of the editorial staff of the publisher of the text). In practice, many organizations use a single cost driver to describe each cost even though many have multiple causes. Careful use of linear-cost behavior with a single cost driver often provides cost estimates that are accurate enough for most decisions, though each cost may have a different cost driver. The use of linear cost behavior may be justified on cost-benefit grounds. See EXHIBIT 3-1 for a graph of linear-cost behavior, the relevant range, and an activity or resource cost driver level. A. Step- and Mixed-Cost Behavior Patterns {L. O. 1} CHAPTER 2 described variable costs as those that vary in proportion to changes in their cost drivers and fixed costs as those that are not affected by cost-driver activity. Two types of costs combine characteristics of both fixed and variable cost behavior....
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Managerial Accounting_ch._3_text-notes_horngren_et._al._14e...

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