JJ04 - Cost-Volume-Profit-Analysis Chapter 4: Mixed Costs...

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1 Cost-Volume-Profit-Analysis Chapter 4: Mixed Costs Cost Estimation Methods Cost Estimation Methods are frequently required to separate the fixed and variable components of a total cost pool. Methods include: 1. Account Analysis 2. Scattergraph 3. High-Low Method 4. Regression 5. Relevant Range
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2 High-Low Method Example : Let total costs at 500 units of output be $150,000 and at 3,000 units of output be $400,000. Calculate variable and fixed costs, respectively. High-Low Method Solution: High Low Change Costs: $400,000 $150,000 $250,000 Units: 3,000 500 2,500 Calculate Variable Cost Per Unit : $250,000/2,500 = $100 Calculate Total Fixed Costs: $400,000 – (3,000 x 100) = $100,000 Relevant Range
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3 Cost-Volume-Profit Analysis 1. The Profit Equation 2. Breakeven Point 3. Margin of Safety 4. Contribution Margin 5. Contribution Margin Ratio 6. What-if Analysis The Profit Equation Profit = SP(x) –VC(x) – TFC X = Quantity of units produced and sold SP = Selling price per unit VC = Variable cost per unit
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JJ04 - Cost-Volume-Profit-Analysis Chapter 4: Mixed Costs...

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