costacctg13_sm_ch10

# Better knowledge of fixed and variable costs will

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Unformatted text preview: Supervisio n labor 45,000 Materials­handling labor 30,000 Maintenance labor 45,000 Depreciat ion 95,000 Rent, property taxes, admin. 100,000 Total \$315,000 0% 0 0 0 0 0 5 7 \$ 0 0 0 0 0 0 4,750 7,000 \$11,750 \$ 0 \$336,000 \$ 336,000 0 264,000 264,000 0 40,000 40,000 45,000 12,000 57,000 30,000 32,000 62,000 45,000 32,000 77,000 99,750 0 99,750 107,000 0 107,000 \$326,750 \$716,000 \$1,042,750 Total manufacturing costs for 2010 = \$1,042,750 2. Total cost per unit, 2009 Total cost per unit, 2010 \$948,750 = \$12.65 75,000 \$1,042,750 = = \$13.03 80,000 = 3. Cost classificat ion into variable and fixed costs is based on qualitative, rather than quant itative, analys is. How good the classificat ions are depends on the knowledge o f individua l managers who classify the costs. Gower may want to undertake quant itative analysis o f costs, using regressio n analys is on time­series or cross­sect ional data to better estimate the fixed and variable co mponents of costs. Better knowledge of fixed and variable costs will help Gower to better price his products, to know when he is getting a posit ive contribut ion margin, and to better manage costs. 10­8 10­23 (15–20 min.) Estimating a cost function, high­low method. 1. The key point to note is that the problem provides high­low values o f X (annual round trips made by a helicopter) and Y ¸ X (the operating cost per round trip). We first need to calculate the annual operating cost Y (as in co lumn (3) below), and then use those values to estimate the funct ion using the high­low method. Cost Driver: Annual Round­ Trips (X) (1) 2,000 1,000 1,000 Operating Cost per Round­Trip (2) \$300 \$350 Annual Operating Cost (Y) (3) = (1) ´ (2) \$600,000 \$350,000 \$250,000 Highest observat ion of cost driver Lowest observat ion of cost driver Difference Slope coefficient = \$250,000 ¸ 1,000 = \$250 per round­trip Constant = \$600,000 – (\$250 ´ 2,000) = \$100,000 The est imated relat ionship is Y = \$100,000 + \$250 X; where Y is the annual...
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