Kế toán, kiểm toán - Chapter 5: Cost drivers and cost behavior

1Cost Drivers and Cost BehaviorCHAPTER 5© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PowerPoint Presentation by LuAnn BeanProfessor of AccountingFlorida Institute of TechnologyManagerial Accounting 11E Maher/Stickney/Weil2CHAPTER GOALThis chapter discusses classifying costs and methods for estimating cost behavior. Fixed costsVariable costsAll managerial decisions deal with choices among different activity levels. Managers must estimate which costs will vary with the activity and by how much.☼☼3VARIABLE COSTS: DefinitionAre costs that change in total as the level of activity changes.LO 1FIXED COSTS: DefinitionAre costs that do not change in total with changes in activity levels. 4RELEVANT RANGE: DefinitionIs the range of activity over which the firm expects a set of cost behaviors to be consistent.LO 15LO 1EXHIBIT 5.1Estimates of variable and fixed costs apply only if level of activity lies within relevant range. 6FIXED COSTSFixed (capacity) costs are divided between Committed costsCapacity costs that will continue to exist even if operations are temporarily reducedDiscretionary (programmed or managed) costsNeed not be incurred in the short run to operate the businessLO 27VARIABLE and FIXED COSTS: A ReminderVariable costs change with the volume of activity.Fixed costs remain constant over the relevant range of activity.LO 38CURVILINEAR VARIABLE COSTS: DefinitionAre costs that vary with the volume of activity but not in constant proportion.LO 39What is an example of a curvilinear cost?Costs become curvilinear when volume discounts are offered. LO 310LO 3EXHIBIT 5.5Volume discounts. 11LO 3EXHIBIT 5.6 AProduction time decreases as volume increases due to learning from experience. 12LO 3EXHIBIT 5.6 B & CTotal labor time and cost will decrease with increases in volume. TimeCost13SEMIVARIABLE COSTS: DefinitionAre costs that have both fixed and variable components. Also called Mixed Costs.LO 314LO 3EXHIBIT 5.7Semifixed costs change because of changes in long-term assets; semivariable costs do not. SemivariableSemifixed15SIMPLIFYING COST ANALYSESSome costs do not vary in the short run over the relevant range (fixed costs). Some vary with volume (variable costs). Others are neither completely fixed or variable.Decision makers can simplify these variations by treating costs as either fixed or variable.LO 316EXERCISE 3Press “Enter” or click left mouse button for answer.Name three methods of cost estimation.LO 4Statistical regression, Account analysis, and Engineering estimation17ANALYZING HISTORICAL COSTS Two steps to analyze historical cost dataMake an estimate of the past relationUpdate for current, future periodsAdjust costs for inflation and other changesLO 518TOTAL COST EQUATIONLO 5Total costs = Fixed costs + (Variable costs × Activity)Independent Variables19ANALYZING COSTSSteps in analyzing costs are:Review alternative cost drivers (independent variables)Plot the dataExamine the data and method of accumulationLO 520MULTIPLE REGRESSION: DefinitionHas more than one independent variable.LO 6R21DATA PROBLEMSRegardless of method used, results will only be as good as the quality of the data used. Problems includeMissing dataOutliersAllocated and discretionary costsInflationMismatched time periodsTrade-offs in choosing time periodLO 622LO 7EXHIBIT 5.12Every method of cost estimation has strengths and weaknesses. 23COMMON SIMPLIFICATIONSIn general, more sophisticated methods provide more accurate cost estimates than simpler ones. Methods of simplification areUsing only one cost driverAssuming cost behavior patterns are linear within the relevant rangeAssume cost decreases are not “sticky”LO 724DERIVING LEARNING CURVESMathematically, the learning curve effect can be expressed by the equation: Y=aX b, whereY = average number of labor hours required per unit for X unitsa = number of labor hours required for the first unitX = cumulative number of units producedb = index of learning, equal to the log of the learning rate divided by the log of 2.LO 825STANDARD ERRORS OF THE COEFFICIENTSThe standard errors of the coefficients give an idea of the confidence we can have in the fixed and variable cost coefficients. The smaller the standard error relative to its coefficient, the more precise the estimate. Such computational precision does not necessarily indicate that the estimating procedure is theoretically correct, however.LO 926T-STATISTICThe ratio between an estimated regression coefficient and its standard error is known as the t-value or t-statistic. If the absolute value of the t-statistic is approximately 2 or larger, we can be relatively confident that the actual coefficient differs from zero.LO 927R-SQUAREDThe R2 attempts to measure how well the line fits the data (that is, how closely the data points cluster about the fitted line). If all the data points were on the same straight line, the R2 would be 1.00—a perfect fit. If the data points formed a circle or disk, the R2 would be zero, indicating that no line passing through the center of the circle or disk fits the data better than any other. LO 928End of CHAPTER 5