chapter 23 l.
Skip this Video
Download Presentation
Chapter 23

Loading in 2 Seconds...

play fullscreen
1 / 20

Chapter 23 - PowerPoint PPT Presentation

  • Uploaded on

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.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'Chapter 23' - Jims

Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
chapter 23

Chapter 23

Includes Supplements 9, 10, 11

Accounting Version

supplement nine

Supplement Nine

Using linear regression to separate fixed and variable labor costs

graph of cost equation y a bx
Graph of Cost Equation: y = a + bX

Y = Costs



Total Costs

Fixed Costs

X = Workunits


Separate total labor costs into fixed and variable labor components

microsoft excel
Microsoft Excel
  • From the menu select
    • Tools
    • Data analysis
    • Regression
      • Y range is total dollars
      • X range is total work units
    • Okay
regression output
Regression Output

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

cost equation
Cost Equation

Y = 460.10 + 3.73X

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

5 x $3.73 = $18.65

supplement ten
Supplement Ten

Determined with

RVU methodology

Determine by

pulling invoices

for materials

Will be determined

through the use of

an overhead rate after

service department

costs have been

allocated to revenue


overhead allocation methods
Overhead Allocation Methods
  • Direct allocation method
  • Sequential step-down method
  • Double apportionment method
  • Reciprocal method
first allocation
First Allocation

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.

second allocation
Second Allocation

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

supplement eleven

Supplement Eleven

Ratio of Costs to Charges (RCC)

rcc steps
RCC Steps
  • 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.

ratio of costs to charges rcc
Ratio of Costs to Charges (RCC)
  • 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.