ACTG2020_Week4_2014_Ch5_6_7CMD

# Ange of activity 1000 2000 3000 rented area square

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Unformatted text preview: Square Feet) LO 1 Fixed Costs and Relevant Range How does this type of fixed cost differ from a step-variable cost? cost? Step-variable 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 Patient-days 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/patient-day Y = \$10,000 + \$1.25X Total maintenance cost Total Number of patient days LO 2 The High-Low 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 High-Low 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 high-low 120,000 units are sold. Using the high-low 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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## This note was uploaded on 03/28/2014 for the course ACTG 2020 taught by Professor Lizfarrel during the Spring '11 term at York University.

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