1、Activity Cost Behavior,CHAPTER,1. Define cost behavior for fixed, variable, and mixed costs. 2. Explain the role of the resource usage model in understanding cost behavior. 3. Separate mixed costs into their fixed and variable components using the high-low method, the scatterplot method, and the met
2、hod of least squares.,Objectives,After studying this chapter, you should be able to:,continued,4. Evaluate the reliability of a cost equation. 5. Discuss the role of multiple regression in assessing cost behavior. 6. Describe the use of managerial judgment in determining cost behavior.,Objectives,Fi
3、xed Costs,A cost that stays the same as output changes is a fixed cost.,Cutting machines are leased for $60,000 per year and have the capacity to produce up to 240,000 units a year.,Fixed Costs,Fixed Costs,Fixed Costs,Variable Cost,A variable cost is a cost that, in total, varies in direct proportio
4、n to changes in output.,As the cutting machines cut each unit, they use 0.1 kilowatt-hour at $2.00 per kilowatt hour. Thus, the cost of each unit is $0.20 ($2 x 0.1).,Variable Cost,Total Variable Cost Graph,Variable Cost,Yv = .20x,Variable Cost,Unit Variable Cost Graph,A mixed cost is a cost that ha
5、s both a fixed and a variable component.,Mixed Costs,Mixed Costs,Sales representatives often are paid a salary plus a commission on sales.,MixedCosts,Mixed Cost Behavior,Total Costs,0,Units Sold (000),$130,000 $110,000 $90,000 $70,000 $50,000$30,000,40 80 120 160 180 200,Activity Cost Behavior Model
6、,Input:,Materials,Energy,Labor,Capital,Flexible Resources,Flexible resources are resources acquired as used and needed. Materials and energy are examples.,Committed Resources,Committed resources are supplied in advance of usage. Buying or leasing a building is an example of this form of advance reso
7、urce acquisition.,A step cost displays a constant level of cost for a range of output and then jumps to a higher level of cost at some point.,Step-Cost Behavior,Cost,Activity Output (units),$500 400 300 200 100,10 20 30 40 50,Step-Cost Behavior,Normal Operating Range (Relevant Range),Step-Fixed Cost
8、s,Cost $150,000 100,000 50,000,2,500 5,000 7,500,Activity Usage,Three engineers hired at $50,000 each Each engineer is capable of processing 2,500 change orders $90,000 was spent on supplies for the engineering activity There were 6,000 orders processed The company could process as many as 7,500 ord
9、ers,Step-Cost Behavior,Available orders = Orders used + Orders unused7,500 orders = 6,000 orders + 1,500 orders Fixed engineering rate = $150,000/7,500= $20 per change order Variable engineering rate = $90,000/6,000= $15 per change order,Step-Cost Behavior,The relationship between resources supplied
10、 and resources used is expressed by the following equation:,Resources available = Resources used + Unused capacity,Step-Cost Behavior,Cost of orders supplied = Cost of orders used + Cost of unused orders= ($20 + $15) x 6,000 + ($20 x 1,500)= $240,000,The $30,000 of excess engineering capacity means
11、that a new product could be introduced without increasing current spending on engineering.,Step-Cost Behavior,The High-Low Method The Scatterplot Method The Method of Least Squares,Methods for Separating Mixed Costs,The linearity assumption assumes that variable costs increase in direct proportion t
12、o the number of units produced (or activity units used).,Methods for Separating Mixed Costs,Y = a + bx,Month Setup Costs Setup Hours January $1,000 100 February 1,250 200 March 2,250 300 April 2,500 400 May 3,750 500,The High-Low Method,Step 1: Solve for variable cost (b),Month Setup Costs Setup Hou
13、rs January $1,000 100 February 1,250 200 March 2,250 300 April 2,500 400 May 3,750 500,The High-Low Method,Month Setup Costs Setup Hours January $1,000 100 February 1,250 200 March 2,250 300 April 2,500 400 May 3,750 500,The High-Low Method,Month Setup Costs Setup Hours January $1,000 100 February 1
14、,250 200 March 2,250 300 April 2,500 400 May 3,750 500,The High-Low Method,b = $6.875,Step 2: Using either the high cost or low cost, solve for the total fixed cost (a).,The High-Low Method,Y = a + b (x),$3,750 = a + $6.875(500),$312.50 = a,High End,Y = a + b (x),$1,000 = a + $6.875(100),$312.50 = a
15、,Low End,The cost formula using the high-low method is:Total cost = $312.50 + ($6.875 x Setup hours),The High-Low Method,The Scatterplot Method,Activity Cost,0,Activity Output,*,*,*,*,*,The Scatterplot Method,Nonlinear Relationship,Activity Cost,0,Activity Output,*,*,*,*,*,*,The Scatterplot Method,U
16、pward Shift in Cost Relationship,Activity Cost,0,Activity Output,*,*,*,*,*,*,The Scatterplot Method,Presence of Outliers,The Method of Least Squares,Spreadsheet Data for Larson Company,The Method of Least Squares,Regression Output for Larson Company,The Method of Least Squares,The results give rise
17、to the following equation: Setup costs = $125 + ($6.75 x Setup hours) R2 = .944, or 94.4 percent of the variation in setup costs is explained by the number of setup hours variable.,Coefficient of Correlation,Positive Correlation,Machine Hours,Utilities Costs,r approaches +1,Machine Hours,Utilities C
18、osts,Coefficient of Correlation,Negative Correlation,Hours of Safety Training,Industrial Accidents,r approaches -1,Hours of Safety Training,Industrial Accidents,Coefficient of Correlation,No Correlation,Hair Length,Accounting Grade,r 0,Hair Length,Accounting Grade,TC = b0 + ( b1X1) + (b2X2) + . . .,
19、b0 = the fixed cost or interceptb1 = the variable rate for the first independent variableX1 = the first independent variable b2 = the variable rate for the second independent variableX2 = the second independent variable,Multiple Regression,Multiple Regression,Data for Phoenix Factory Utilities Cost
20、Regression,Multiple Regression,Multiple Regression for Phoenix Factory Utilities Cost,The results gives rise to the following equation: Utilities cost = $243.11 + $1.097(Machine hours) + ($510.49 x Summer) R2 = .967, or 96.7 percent of the variation in utilities cost is explained by the machine hours and summer variables.,Multiple Regression,Managerial Judgment,Managerial judgment is critically important in determining cost behavior, and it is by far the most widely used method in practice.,The End,Chapter Three,
