Managerial accounting garrison norren 11th ed chap005

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11th Edition Chapter McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Cost Behavior: Analysis and Use Chapter Five McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Types of Cost Behavior Patterns Recall the summary of our cost behavior discussion from an earlier chapter McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc The Activity Base Units Units produced produced Machine Machine hours hours A Ameasure measure of of what what causes causes the the incurrence incurrence of of aa variable variable cost cost Miles Miles driven driven McGraw-Hill/Irwin Labor Labor hours hours Copyright © 2006, The McGraw-Hill Companies, Inc True Variable Cost Example Total Long Distance Telephone Bill A variable cost is a cost whose total dollar amount varies in direct proportion to changes in the activity level Your total long distance telephone bill is based on how many minutes you talk Minutes Talked McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Types of Cost Behavior Patterns Recall the summary of our cost behavior discussion from an earlier chapter McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Variable Cost Per Unit Example Per Minute Telephone Charge A variable cost remains constant if expressed on a per unit basis The cost per minute talked is constant For example, 10 cents per minute Minutes Talked McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Extent of Variable Costs The proportion of variable costs differs across organizations For example A public utility with large investments in equipment will tend to have fewer variable costs A manufacturing company will often have many variable costs A service company will normally have a high proportion of variable costs A merchandising company usually will have a high proportion of variable costs like cost of sales McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Examples of Variable Costs Merchandising companies – cost of goods sold Manufacturing companies – direct materials, direct labor, and variable overhead Merchandising and manufacturing companies – commissions, shipping costs, and clerical costs such as invoicing Service companies – supplies, travel, and clerical McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc True Variable Cost Cost Direct materials is a true or proportionately variable cost because the amount used during a period will vary in direct proportion to the level of production activity Volume McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc The Contribution Format The The contribution contribution margin margin format format emphasizes emphasizes cost cost behavior behavior Contribution Contribution margin margin covers covers fixed fixed costs costs and and provides provides for for income income McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Uses of the Contribution Format The The contribution contribution income income statement statement format format is is used used as as an an internal internal planning planning and and decision decision making making tool tool We We will will use use this this approach approach for: for: 1 Cost-volume-profit Cost-volume-profit analysis analysis (Chapter (Chapter 6) 6) 2 Budgeting Budgeting (Chapter (Chapter 9) 9) 3 Segmented Segmented reporting reporting of of profit profit data data (Chapter (Chapter 12) 12) 4 Special Special decisions decisions such such as as pricing pricing and and make-ormake-orbuy buy analysis analysis (Chapter (Chapter 13) 13) McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc The Contribution Format Comparison of the Contribution Income Statement with the Traditional Income Statement Traditional Approach (costs organized by function) Contribution Approach (costs organized by behavior) Sales $ 100,000 Less cost of goods sold 70,000 Gross margin $ 30,000 Less operating expenses 20,000 Net operating income $ 10,000 Sales $ 100,000 Less variable expenses 60,000 Contribution margin $ 40,000 Less fixed expenses 30,000 Net operating income $ 10,000 Used primarily for external reporting McGraw-Hill/Irwin Used primarily by management Copyright © 2006, The McGraw-Hill Companies, Inc Appendix 5A Least-Squares Regression Using Microsoft Excel McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Analysis Example Matrix, Matrix, Inc Inc wants wants to to know know its its average average fixed fixed cost cost and and variable variable cost cost per per unit unit Using Using the the data data to to the the right, right, let’s let’s see see how how to to do aa regression regression using using Microsoft Microsoft Excel Excel McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Using Excel You You will will need need three three pieces pieces of of information information from from your your regression regression analysis: analysis: 1 Estimated Estimated Variable Variable Cost Cost per per Unit Unit (line (line slope) slope) 2 Estimated Estimated Fixed Fixed Costs Costs (line (line intercept) intercept) 3 Goodness Goodness of of fit, fit, or or R R22 To Toget get these these three three pieces pieces information information we we will will need need to to use use three three different different Excel Excel functions functions LINEST, LINEST,INTERCEPT, INTERCEPT,&& RSQ RSQ McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Using Excel Place Place your your cursor cursor in in cell cell F4 F4 and and press press the the == key key Click Click on on the the pull pull down down menu menu and and scroll scroll down down to to “More “More Functions Functions ”.” McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Using Excel Scroll Scroll down down to to the the ““Statistical Statistical”,”, functions functions Now Now scroll scroll down down the the statistical statistical functions functions until until you you highlight highlight ““LINEST LINEST”” McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Using Excel 1 In In the the Known_y’s Known_y’s box box enter enter C4:C19 C4:C19 for for the the range range 2 In In the the Known_x’s Known_x’s box box enter enter D4:D19 D4:D19 for for the the range range McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Using Excel Here is the estimate of the slope of the line 1 In In the the Known_y’s Known_y’s box box enter enter C4:C19 C4:C19 for for the the range range 2 In In the the Known_x’s Known_x’s box box enter enter D4:D19 D4:D19 for for the the range range McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Using Excel With With you you cursor cursor in in cell cell F5, F5, press press the the == key key and and go go to to the the pull pull down down menu menu for for special special functions functions Select Select Statistical Statistical and and scroll scroll down down to to highlight highlight the the INTERCEPT INTERCEPT function function McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Using Excel Here is the estimate of the fixed costs 1 In In the the Known_y’s Known_y’s box box enter enter C4:C19 C4:C19 for for the the range range 2 In In the the Known_x’s Known_x’s box box enter enter D4:D19 D4:D19 for for the the range range McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Using Excel Finally, Finally, we we will will determine determine the the ““goodness goodness of of 22 fit ”, or R fit”, or R ,, by by using using the the RSQ RSQ function function McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc Simple Regression Using Excel Here is the estimate of R2 1 In In the the Known_y’s Known_y’s box box enter enter C4:C19 C4:C19 for for the the range range 2 In In the the Known_x’s Known_x’s box box enter enter D4:D19 D4:D19 for for the the range range McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc End of Chapter McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc ... Companies, Inc Types of Fixed Costs Committed Committed Discretionary Discretionary Long-term, Long-term, cannot cannot be be significantly significantly reduced reduced in in the the short short... Analysis of Mixed Costs Account Analysis and the Engineering Approach Each Each account account is is classified classified as as either either variable variable or or fixed fixed based based on on... their muscles muscles McGraw-Hill/Irwin Knowledge Knowledge workers workers tend tend to to be be salaried, salaried, highly-trained highly-trained and and difficult difficult to to replace replace
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