anagerial accouting CVP cost-value-profit.pptxVIP

Cost Behavior: Analysis and Use Chapter 5 Learning Objectives A. Variable cost behavior. B. Types of fixed costs: committed and discretionary. C. Behavior of fixed costs in total and on a unit basis. D. Mixed costs (combination of fixed and variable). E. Scattergraph plot of a mixed cost. F. High-low method of mixed cost analysis. G. Least-squares regression method of mixed cost analysis. H. Contribution income statement. Cost Behavior VARIABLE COST BEHAVIOR Many costs can be described as variable, fixed, or mixed. A variable cost changes in total in proportion to changes in activity; a variable cost is constant on a per-unit basis. EXAMPLE: Each bicycle requires one bicycle chain costing $8. EXAMPLES OF COSTS THAT ARE NORMALLY VARIABLE WITH RESPECT TO OUTPUT VOLUME Merchandising company Costs of goods (merchandise) sold Manufacturing company Direct materials Direct labor* Variable elements of manufacturing overhead: Indirect materials Lubricants Supplies Power Both merchandising and manufacturing companies Variable elements of selling and administrative costs: Commissions Shipping costs Service organizations Supplies, travel *Whether direct labor is fixed or variable will depend on the labor laws of the country, custom, and the company’s employment contracts and policies. FIXED COST BEHAVIOR A fixed cost remains constant in total amount throughout wide ranges of activity. EXAMPLE: Fashion photographer Lori Yang rents studio spaces in a prestige location for $50,000 a year. She measures her company’s activity in terms of the number of photo sessions. FIXED COST BEHAVIOR per unit A fixed cost varies inversely with activity if expressed on a per unit basis. TYPES OF FIXED COSTS ? Committed fixed costs relate to investment in plant, equipment, and basic administrative structure. It is difficult to reduce these fixed costs in the short-term. Examples include: ? Equipment depreciation. ? Real estate taxes. ? Salaries of key operating perso