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ACCT 2102 Chapter 2 Notes

# ACCT 2102 Chapter 2 Notes - formula you developed...

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Cost Behavior (Chapter 2) Cost behavior = how costs will behave with a change in activity 3 categories of cost behavior 1. Variable costs – on a per/unit basis it doesn’t change but in total it does change 2. Fixed costs – no change in total but changes on a per/unit basis 3. Mixed costs – changes in total and on a 4. per/unit basis Cost Driver = determines the cost behavior The identified cost of behavior is only valid over the relevant range (normal range of operations) Graduated from High School in 1995 If you are planning a committee… Cost driver is # of people expected to attend Cost Food – variable Venue – fixed Decorations – fixed Invitations – mixed Music – fixed Total costs = (per/unit variable cost)(cost driver) + fixed costs High-Low Method Four steps to calculate the dependant variable 1. Find high and low data points based on the independent variable (x) 2. Calculate the variable rate (m) 3. Calculate the fixed costs (b) 4. Develop a cost formula (y=mx + b)

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Then choose your x (staying within the relevant range and solve for y using the cost
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Unformatted text preview: formula you developed) Regression Analysis • Statistically fit line based on all data points • Use a spreadsheet package to o Develop a cost o Determine if the variability in the dependant variable is explained by the variability in the independent variable Example • R squared = co-efficient of determination = goodness of fit • Intercept = “b” = fixed cost • X Variable 1 = slope Managerial Judgment • To calculate the independent variable, managers make an educated guess High Low Method • Advantage o Objective o Quick • Disadvantages o Possible that high and low points are outliers Regression Analysis • Advantages o Accurate • Disadvantages o Interpretation of output requires a greater amount of knowledge Managerial Judgment • Advantages o People bring knowledge that spreadsheets can’t supply • Disadvantage o Need experience, knowledgeable people making the judgment calls...
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ACCT 2102 Chapter 2 Notes - formula you developed...

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