Kế toán, kiểm toán - Chapter 6: Activity analysis, cost behavior, and cost estimation

Chapter 6Activity Analysis, Cost Behavior, and CostEstimationCostpredictionUsing knowledgeof cost behaviorto forecastlevel of cost ata particularactivity. Focusis on the future.IntroductionCostbehaviorRelationshipbetweencost andactivity.Process ofdeterminingcost behavior,often focusingon historicaldata.CostestimationTotal Variable Cost Example Your total Pay Per View bill is based on how many Pay Per View shows that you watch.Number of Pay Per View shows watchedTotal Pay Per View BillVariable Cost Per Unit ExampleNumber of Pay Per View shows watchedCost per Pay Per View showThe cost per Pay Per View show is constant. For example, $4.95 per show.Step-Variable CostsActivityCostTotal cost remainsconstant within anarrow range ofactivity.Total Fixed Cost ExampleYour monthly basic cable TV bill probably does not change no matter how many hours you watch. Number of hours watchedMonthly Basic Cable BillFixed Cost Per Unit ExampleNumber of hours watched Monthly Basic cable Bill per hour watchedThe average cost per hour decreases as more hours are spent watching cable television.Rent Cost in Thousands of Dollars 0 1,000 2,000 3,000  Rented Area (Square Feet)306090Total cost doesn’t change for a wide range of activity, and then jumps to a new higher cost for the next higher range of activity.Step-Fixed CostsFixed MonthlyUtility ChargeVariable Utility ChargeActivity (Kilowatt Hours) Total Utility CostTotal semivariable costSemivariable Cost Slope isvariable costper unitof activity.Curvilinear CostCurvilinearCost FunctionRelevant RangeActivityTotal CostCurvilinearCost FunctionA straight-line(constant unit variable cost) closely approximates a curvilinear line withinthe relevant range.Curvilinear CostCurvilinearCost FunctionRelevant RangeActivityTotal CostCurvilinearCost FunctionA straight-Line(constant unit variable cost) closely approximates a curvilinear line withinthe relevant range.Engineered, Committed and Discretionary CostsDiscretionaryMay be altered in the short term by current managerial decisions.CommittedLong-term, cannot be reduced in the short term.EngineeredPhysical relationship with activity measure.Depreciation on Buildings and equipmentAdvertising and Research and DevelopmentDirect MaterialsVisual-Fit MethodVertical distance is total cost, approximately $16,000.0 1 2 3 4*Total Cost in1,000’s of Dollars10200*********Activity, 1,000’s of Units ProducedEstimated fixed cost = $10,000A scatter diagram of past cost behavior may be helpful in analyzing mixed costs.OwlCo recorded the following production activity and maintenance costs for two months: Using these two levels of activity, compute: the variable cost per unit. the total fixed cost.The High-Low Method Unit variable cost = $3,600 ÷ 4,000 units = $.90 per unit Fixed cost = Total cost – Total variable cost Fixed cost = $9,700 – ($.90 per unit × 9,000 units) Fixed cost = $9,700 – $8,100 = $1,600The High-Low Method