The cost of the resources are estimated Dividing cost on activity gives the

# The cost of the resources are estimated dividing cost

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The cost of the resources are estimated Dividing cost on activity gives the average cost per unit of activity Can be costly and time consuming
3-ACCOUNTS ANALYSIS METHOD Attempts to identify costs with various activity pools and derive an average cost per unit of the related cost driver Example How much total cost was incurred to attract new customer? How many new customers were attracted? Divide cost by number of customers to get the cost per new customer Costly and not as reliable as statistical
4- Scattergraph and High-Low method 1-Plot the data points on a graph (total cost vs activity). 2-Draw a line through the data points with about an equal numbers of points above and below the line . 3-Use one data point to estimate the total level of activity and the total cost. 4-Make a quick estimate of variable cost per unit and determine the cost equation.
Plot the data points on a graph (total cost vs. activity). 0 1 2 3 4 * Maintenance Cost 1,000’s of Dollars 10 20 0 * * * * * * * * * Patient-days in 1,000’s X Y THE SCATTERGRAPH METHOD
THE SCATTERGRAPH METHOD Draw a line through the data points with about an equal numbers of points above and below the line. 0 1 2 3 4 * Maintenance Cost 1,000’s of Dollars 10 20 0 * * * * * * * * * Patient-days in 1,000’s X Y
THE SCATTERGRAPH METHOD Use one data point to estimate the total level of activity and the total cost. Intercept = Fixed cost: \$10,000 0 1 2 3 4 * Maintenance Cost 1,000’s of Dollars 10 20 0 * * * * * * * * * Patient-days in 1,000’s X Y Patient days = 800 Total maintenance cost = \$11,000
THE SCATTERGRAPH METHOD Make a quick estimate of variable cost per unit and Make a quick estimate of variable cost per unit and determine the cost equation.

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