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chapter%20300 - Chapter 3 Cost Behavior 1 Accounting 2102...

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September 7, 2011 Accounting 2102 1 Chapter 3 Cost Behavior
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September 7, 2011 Accounting 2102 2 What is cost behavior? foundation of managerial accounting Three main categories of cost behavior Variable Costs Fixed Costs Mixed Costs The cost driver chosen determines the cost behavior The identified cost behavior is only valid over the relevant range
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September 7, 2011 Accounting 2102 3 Let’s work through an example. Let’s say you are on the planning committee for your high school class reunion. What costs would you incur? How does each cost behave? Venue Food Invitations What would be an appropriate cost driver?
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Let’s think about this algebraically . y = mx + b September 7, 2011 Accounting 2102 4
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September 7, 2011 Accounting 2102 5 What if we don’t know “m” or “b” but need to estimate costs? accounting records only show total costs . . . total costs can’t be used for planning and decision making methods to break down total costs into cost behavior categories high-low method regression analysis managerial judgment let’s look at each method individually
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