William F Bentz-212 Review.pptVIP

212 Review Basic Cost Behavior Basic Model of Total Cost In AMIS 212, we use the basic model of total cost, TC = F + vQ Model Characteristics Total cost depends exclusively on the volume of activity Total cost is a linear function of activity volume Illustration Consider an illustration of five ways information might be presented to you on a quiz, exam, or practical situation. All five are based on the same fact situation, so the answers will be the same. What differs is the manner in which the information is presented. Basic Data Fact situation: Sales volume measured in units or dollars Fixed cost, F = $20,000 Variable cost v = $1.50 per unit Case A Given the two cost estimation parameters, estimate total cost for a specified volume level (like GN exercise 5 - 1) Case A Variable cost, v = $1.50 Fixed cost, F = $20,000 Compute total cost (TC) of 13, 000 units Case A TC = $20,000 + $1.50(13,000) = $20,000 + $19,500 = $39,500 Case B Given the total cost for a specified level of volume, and the proportion of total cost represented by either the fixed or the variable component of total cost, estimate total cost for a different volume level Case B Given: TC = $50,000 for 20,000 units Fixed cost is 40% of total cost at this volume Compute total cost (TC) of 13, 000 units Case B TC = F + vQ vQ = TC – F vQ = $50,000 – 40%($50,000) = $50,000 - $20,000 v(20,000) = $30,000 v = $30,000 / 20,000 units = $1.50 per unit Case B TC = $20,000 + $1.50(13,000) = $20,000 + $19,500 = $39,500 Case C Given per-unit fixed and variable costs for a specified level of volume, estimate total cost for a different level of volume Case C Given the cost per unit by component for 12,000 units: Variable $ 1.50000 Fixed 1.66667 Total $ 3.16667 Compute total cost (TC) of 13, 000 units Case C F = 12,000 units @ $1.66667 F = $20,000 v = $1.50 per unit (given) Therefore, the cost estimation equation is: TC = $20,000 + $1.50 Q Case C Compute total cost of 13,000 units TC = $20