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Managerial Accounting and Cost Concepts

Managerial Accounting and Cost Concepts. Contribution Format High Low Method Least Squares Method. The Contribution Format. Let’s put our knowledge of cost behavior to work by preparing a contribution format income statement.

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Managerial Accounting and Cost Concepts

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  1. Managerial Accounting and Cost Concepts Contribution Format High Low Method Least Squares Method

  2. The Contribution Format Let’s put our knowledge of cost behavior to work by preparing a contribution format income statement.

  3. The contribution margin format emphasizes cost behavior. Contribution margin covers fixed costs and provides for income. The Contribution Format

  4. Used primarily forexternal reporting. Used primarily bymanagement. The Contribution Format

  5. Y X Mixed Costs Total mixed cost Total Utility Cost Variable Cost per KW Fixed MonthlyUtility Charge Activity (Kilowatt Hours)

  6. The Scattergraph Method Y Total maintenance cost = $11,000 20 * * * * * * * * Maintenance Cost1,000’s of Dollars * * 10 Intercept = Fixed cost: $10,000 0 X 0 1 2 3 4 Patient-days in 1,000’s Patient days = 800 Use one data point to estimate the total level of activity and the total cost. 5-6

  7. The High-Low Method $2,400 400 = $6.00/hour The variable cost per hourof maintenance is equal to the change in cost divided by the change in hours. 5-7

  8. The High-Low Method Total Fixed Cost = $9,800 – $5,100 Total Fixed Cost = $4,700 Total Fixed Cost = Total Cost – Total Variable Cost Total Fixed Cost = $9,800 – ($6/hour × 850 hours) 5-8

  9. The High-Low Method – An Example The Cost Equation for Maintenance Y = $4,700 + $6.00X 5-9

  10. Least-Squares Regression Method A method used to analyze mixed costs if a scattergraph plot reveals an approximately linear relationship between the X and Y variables. This method uses all of thedata points to estimatethe fixed and variablecost components of amixed cost. The goal of this method isto fit a straight line to thedata that minimizes thesum of the squared errors. 5-10

  11. Least-Squares Regression Method Software can be used to fit a regression line through the data points. The cost analysis objective is the same: Y = a + bX Least-squares regression also provides a statistic, called the R2, which is a measure of the goodnessof fit of the regression line to the data points. 5-11

  12. End of Chapter 02

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