Chapter 19 - 19 Cost Behavior and CostVolume-Profit...

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11-1 19-1 19 Cost Behavior and Cost- Volume-Profit Analysis Student Version
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11-2 19-2 1 Classify costs as variable costs, fixed costs, or mixed costs. 19-2
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11-3 19-3 Variable Costs Variable costs are costs that vary in proportion to changes in the level of activity. 1
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11-4 19-4 Jason Sound Inc. produces stereo systems. The parts for the stereo system are purchased from suppliers for $10 per unit (a variable cost) and assembled by Jason Sound Inc. Jason Sound Inc. 1
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11-5 19-5 For Model JS-12, the direct materials for the relevant range of 5,000 to 30,000 units of production are shown below. 1
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11-6 19-6 Fixed Costs Fixed costs are costs that remain the same in total dollar amount as the activity base changes. 1
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11-7 19-7 Minton Inc. manufactures, bottles, and distributes perfume. The production supervisor is Jane Sovissi. She is paid $75,000 per year. The plant produces from 50,000 to 300,000 bottles of La Fleur Perfume. Minton Inc. 1
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11-8 19-8 Number of Bottles of Perfume Produced Total Salary for Jane Sovissi 50,000 bottles $75,000 $1.500 100,000 75,000 0.750 150,000 75,000 0.500 200,000 75,000 0.375 250,000 75,000 0.300 300,000 75,000 0.250 Salary per Bottle of Perfume Produced Fixed Versus Variable Cost of Jane Sovissi’s Salary per Bottle of Perfume 1
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11-9 19-9 Mixed Costs Mixed costs (sometimes called semivariable or semifixed costs) have characteristics of both a variable and a fixed cost. Over one range of activity, the total mixed cost may remain the same. Over another range of activity, the mixed cost may change in proportion to changes in level of activity. 1
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11-10 19-10 Simpson Inc. manufactures sails, using rented equipment. The rental charges are $15,000 per year, plus $1 for each machine hour used over 10,000 hours. Simpson Inc. 1
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11-11 19-11 The high-low method is a cost estimation method that may be used for separating mixed costs into their fixed and variable components. High-Low Method 1
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11-12 19-12 Production Total (Units) Cost June 1,000 $45,550 July 1,500 52,000 August 2,100 61,500 September 1,800 57,500 October 750 41,250 Fill in the formula for difference in cost. $61,500 41,250 $20,250 Variable Cost per Unit = Difference in Production Difference in Total cost $20,250 1 Estimating Variable Cost Using High-Low
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11-13 19-13 Difference in total cost 2,100 750 1,350 Then, fill in the formula for difference in production. Production Total (Units) Cost June 1,000 $45,550 July 1,500 52,000 August 2,100 61,500 September 1,800 57,500 October 750 41,250 Variable Cost per Unit = Difference in Production $20,250 1,350 1 Estimating Variable Cost Using High-Low
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11-14 19-14 = $15 Variable cost per unit is $15 Production Total (Units) Cost June 1,000 $45,550 July 1,500 52,000 August 2,100 61,500 September 1,800 57,500 October 750 41,250 Variable Cost per Unit = $20,250 1,350 1 Estimating Variable Cost Using High-Low
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11-15 19-15 The first step in determining fixed cost is to insert the variable cost of $15 into the following formula: Total Cost = ($15 × Units of Production) + Fixed Cost Estimating Fixed Cost Using High-Low Total Cost = (Variable Cost per Unit × Units of Production) + Fixed Cost 1
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11-16 19-16 Using the highest level of production, we insert the total cost and units produced in the formula.
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