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LO 1 Fixed Costs and Relevant Range How does this type
of fixed cost differ
from a stepvariable
cost?
cost? Stepvariable costs
can be adjusted more
quickly and . . .
The width of the
activity steps is much
wider for the fixed
cost.
LO 1 Quick Check 1.
1.
2.
2.
3.
3.
4.
4. Which of the following statements about cost
Which of the following statements about cost
behaviour are true?
behaviour are true?
Fixed costs per unit vary with the level of
Fixed costs per unit vary with the level of
activity.
activity.
Variable costs per unit are constant
Variable costs per unit are constant
within the relevant range.
within the relevant range.
Total fixed costs are constant within the
Total fixed costs are constant within the
relevant range.
relevant range.
Total variable costs are constant within
Total variable costs are constant within
tthe relevant range.
he relevant range.
LO 1 Mixed Costs Example
A mixed cost has both fixed and variable
A mixed cost has both fixed and variable
components. Consider the example of utility cost.
components. Consider the example of utility cost.
If your fixed monthly utility charge is $40, your variable cost
If
is $0.03 per kilowatt hour, and your monthly activity level is
2,000 kilowatt hours, what is the amount of your utility bill?
2,000 Y = a + bX
Y = $40 + ($0.03 × 2,000)
Y = $100
LO 1 The Scattergraph Method Maintenance Cost
1,000’s of Dollars Use one data point to estimate the total level of activity
Use one data point to estimate the total level of activity
Use
and the total cost.
and the total cost.
Y Total maintenance cost = $11,000
20 * ** *
** **
** 10 Intercept = Fixed cost: $10,000 0 0 1 2 3 4 X Patientdays in 1,000’s
Patient days = 800
LO 2 The Scattergraph Method
Make a quick estimate of variable cost per unit and
Make a quick estimate of variable cost per unit and
Make
determine the cost equation.
determine the cost equation.
Total maintenance at 800 patients
Less: Fixed cost
Estimated total variable cost for 800 patients Variable cost per unit = $1,000
800 $ 11,000
10,000
$ 1,000 = $1.25/patientday Y = $10,000 + $1.25X
Total maintenance cost
Total Number of patient days
LO 2 The HighLow Method
The variable cost
The
per hour of
per
maintenance is
equal to the change
in cost divided by
the change in hours.
the
$2,400
= $8.00/hour
$8.00/hour
300 LO 2 The HighLow Method Total Fixed Cost =
Total Cost – Total
Variable Cost
Total Fixed Cost = $9,800 – ($8/hour × 800 hours)
Total Fixed Cost = $3,400
The Cost Equation for Maintenance Y = $3,400 + $8.00X
LO 2 Quick Check Sales salaries and commissions are $10,000
Sales salaries and commissions are $10,000
when 80,000 units are sold, and $14,000 when
when 80,000 units are sold, and $14,000 when
120,000 units are sold. Using the highlow
120,000 units are sold. Using the highlow
method, what is the variable portion of sales
method, what is the variable portion of sales
salaries and commission?
salaries and commission?
a. $0.08 per unit
a. $0.08 per unit
b. $0.10 per...
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 Spring '11
 LizFarrel
 Accounting, Managerial Accounting

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