Chapter 02s

# The scattergraph method 400 500 600 700 800 900 7000

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The Scattergraph Method 400 500 600 700 800 900 7000 7500 8000 8500 9000 9500 10000 Scattergraph Method X Y Hours of Maintenance Total Maintenance Cost

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2-22 Scattergraph Plots – An Example Assume the following hours of maintenance work and the total maintenance costs for six months.
2-23 The High-Low Method – An  Example The variable cost per hour of maintenance is equal to the change in cost divided by the change in hours. = \$6.00/hour \$2,400 400

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2-24 The High-Low Method – An  Example Total Fixed Cost = Total Cost – Total Variable Cost Total Fixed Cost = \$9,800 – (\$6/hour × 850 hours) Total Fixed Cost = \$9,800 – \$5,100 Total Fixed Cost = \$4,700
2-25 The High-Low Method – An  Example Y = \$4,700 + \$6.00 X The Cost Equation for Maintenance

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2-26 Quick Check  ü Sales salaries and commissions are \$10,000 when 80,000 units are sold, and \$14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission? a. \$0.08 per unit b. \$0.10 per unit c. \$0.12 per unit d. \$0.125 per unit
2-27 Quick Check  ü Sales salaries and commissions are \$10,000 when 80,000 units are sold, and \$14,000 when 120,000 units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions? a. \$ 2,000 b. \$ 4,000 c. \$10,000 d. \$12,000

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2-28 Least-Squares Regression Method A method used to analyze mixed costs if a  scattergraph plot reveals an approximately linear  relationship between the  X  and  Y  variables. This method uses all of the data points to estimate the fixed and variable cost components of a mixed cost. The goal of this method is to fit a straight line to the data that minimizes the sum of the squared errors .
2-29 Comparing Results From the Two Methods The three methods just discussed provide different estimates of the fixed and variable cost components of a mixed cost. This is to be expected because each method uses differing amounts of the data points to provide estimates. Least-squares regression provides the most accurate estimate because it uses all the data points.

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2-30 The Traditional and Contribution  Formats Comparison of the Contribution Income Statement with the Traditional Income Statement Traditional Format Contribution Format Sales 100,000 \$ Sales 100,000 \$ Cost of goods sold 70,000 Variable expenses 60,000 Gross margin 30,000 \$ Contribution margin 40,000 \$ Selling & admin. expenses 20,000 Fixed expenses 30,000 Net operating income 10,000 \$ Net operating income 10,000 \$ Used primarily for external reporting. Used primarily by management.
2-31 Uses of the Contribution Format The contribution income statement format is used as an internal planning and decision-making tool.

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