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# includes supplements 9, 10, 11 accounting version - PowerPoint PPT Presentation

Chapter 23. Includes Supplements 9, 10, 11 Accounting Version. Supplement Nine. Using linear regression to separate fixed and variable labor costs. Graph of Cost Equation: y = a + bX. Y = Costs. Variable Costs. Total Costs. Fixed Costs. X = Workunits. Example.

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## PowerPoint Slideshow about 'includes supplements 9, 10, 11 accounting version' - Jims

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### Chapter 23

Includes Supplements 9, 10, 11

Accounting Version

### Supplement Nine

Using linear regression to separate fixed and variable labor costs

Y = Costs

Variable

Costs

Total Costs

Fixed Costs

X = Workunits

Separate total labor costs into fixed and variable labor components

• Tools

• Data analysis

• Regression

• Y range is total dollars

• X range is total work units

• Okay

Intercept is fixed costs, X variable 1 is variable cost per unit.

Y = 460.10 + 3.73X

A lab test with 5 RVUs would have a standard labor cost of:

5 x \$3.73 = \$18.65

Determined with

RVU methodology

Determine by

pulling invoices

for materials

Will be determined

through the use of

service department

costs have been

allocated to revenue

departments

• Direct allocation method

• Sequential step-down method

• Double apportionment method

• Reciprocal method

Allocate this amount to individual products using an overhead rate

Unlike the sequential method, we allocate costs to all other departments in the first allocation.

The second time through, we only allocate to departments to the right, similar to the sequential or step-down method.

### Supplement Eleven

Ratio of Costs to Charges (RCC)

• Calculate total department costs including allocated overhead

• Calculate total department charges

• Divide department cost by department charges to get ratio of costs to charges

• Multiple existing procedure price by RCC to determine procedure cost

The lab at Community Hospital only performs 5 tests, data for which is shown below:

The lab does not know the cost of each procedure, however, total department costs are shown below.

First we calculate the ratio of costs to charges (RCC):

\$297,000/\$312,632 = 95%

Then we multiply the RCC by the current price (as shown on the next slide) to determine the procedure cost.

• The fallacy with RCC is that it assumes that there was a uniform markup to start with.

• Since charges were not always based on good cost data, this may not be true.