OM459 Financial Tools For Managersom459金融工具管理.pptVIP

Cost Behavior: Analysis and Use Dr. Fred Barbee Cost Behavior: Analysis and Use UAA – ACCT 202 Principles of Managerial Accounting Dr. Fred Barbee Knowledge of Cost Behavior Methods of Analysis Account Analysis Engineering Approach High-Low Method Scattergraph Plot Regression Analysis Account Analysis Each account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves. Engineering Approach Detailed analysis of cost behavior based on an industrial engineer’s evaluation of required inputs for various activities and the cost of those inputs. The Scattergraph Method Quick-and-Dirty Method Quick-and-Dirty Method Advantages One of the principal advantages of this method is that it lets us “see” the data. What are the advantages of “seeing” the data? Nonlinear Relationship Upward Shift in Cost Relationship Presence of Outliers From Algebra . . . If we know any two points on a line, we can determine the slope of that line. High-Low Method A non-statistical method whereby we examine two points out of a set of data . . . The high point; and The low point High-Low Method Using these two points, we determine the equation for that line . . . The intercept; and The Slope parameters High-Low Method To get the variable costs . . . We compare the difference in costs between the two periods to The difference in activity between the two periods. Some Important Considerations We have used historical cost to arrive at the cost equation. Therefore, we have to be careful in how we use the formula. Never forget the relevant range. Strengths of High-Low Method Simple to use Easy to understand Weaknesses of High-Low Only two data points are used in the analysis. Can be problematic if either (or both) high or low are extreme (i.e., Outliers). Weaknesses of High-Low Other months may not yield the same formula. Regression Analysis A statistical technique used to separate mixed costs