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# 22 - Presentation Deck - ACC 212: PRINCIPLES OF ACCOUNTING...

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ACC 212: PRINCIPLES OF ACCOUNTING CHAPTER 22: COST BEHAVIOR ANALYSIS PRESENTATION DECK Prepared by: Jill Mitchell, Assistant Professor, NOVA Reference: Weygandt, Jerry, Kieso, and Kimmel. Accounting Principles Unless noted, illustrations are from the referenced text.

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Chapter 22-2 1.1 Distinguish between variable, fixed, and mixed costs. 1.2 Explain what is meant by relevant range. 22: Cost Behavior Analysis Course Competencies 1. Cost Behavior Analysis 2. Cost-Volume- Profit Analysis 2.1 Indicate what contribution margin is and how it can be expressed. 2.2 Be able to calculate the break even point using the mathematical equation or contribution margin ratio approach. 2.3 Be able to calculate required sale price and volume to achieve target net income.
Chapter 22-3 Cost Behavior Analysis The study of how specific costs respond to changes in the level of business activity. Some costs change and others remain the same. This analysis assists managers plan operations and decide between alternative courses of action. All types of companies can use this analysis. To manage any business, you must understand: how costs respond to changes in sales volume and the effect of costs and revenues on profit To understand cost-volume-profit (CVP), you must know how costs behave!

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Chapter 22-4 Cost Behavior Analysis The starting point for this analysis is to determine the key business activities. Activity levels may be expressed in terms of the following examples: Sales dollars - retail industry Miles driven - trucking industry Room occupancy - hotel industry Number of dance classes taught – dance school Many companies use more than one measurement base in the cost behavior analysis. For an activity level to be useful, changes in the level or volume of activity should be correlated with changes in cost. Activity Index: identifies the activity that causes changes in the behavior of costs There are three types of costs used in this analysis: 1) variable costs 2) fixed costs 3) mixed costs 1.1 Distinguish between variable, fixed and mixed costs.
Chapter 22-5 Variable Costs Variable cost is a cost that changes in TOTAL (cost) based upon changes in activity level. These costs vary in total directly and proportionately with changes in the activity level. Example: If the level increases 10%, total variable costs will increase 10%. Variable costs remains the same PER UNIT at every level of activity. 1.1 Distinguish between variable, fixed and mixed costs.

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Chapter 22-6 Variable Costs - Example Harrison Company manufactures radios that contain a \$10 clock. The activity index is the number of radios produced. For each radio produced, the total cost of the clocks increases by \$10: If 2,000 radios are made, the total cost of the clocks is \$20,000 (2,000 X \$10) If 10,000 radios are made, the total cost of the clocks is \$100,000 (10,000 X \$10) 1.1 Distinguish between variable, fixed and mixed costs.
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## This note was uploaded on 02/28/2011 for the course ACC 212 taught by Professor Mitchell during the Spring '11 term at Northern Virginia Community College.

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22 - Presentation Deck - ACC 212: PRINCIPLES OF ACCOUNTING...

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