Cost Behaviour: Analysis and Use

Cost
behaviour:
Analysis and
Use
Anggota Kelompok
Kanda Agung Kusuma (312334)
Dede Syahputra (315749)
Wahyu Rizki S (346445)
R Muhammad Fajri (346486)
Rahmat Iman P (352862)
Types of Cost behaviour

Patterns
Total Variable Cost

Example
Total Long Distance

Telephone Bill
Your total long distance telephone bill is

based on how many minutes you talk.
Minutes Talked
Variable Cost Per Unit

Example
Per Minute
Telephone Charge
The cost per minute talked is constant.

For example, 10 pence per minute.
Minutes Talked
Total Fixed Cost Example
Monthly Basic
Telephone Bill
Your monthly basic telephone bill is

probably fixed and does not change
when you make more local calls.
Number of Local Calls
Fixed Cost Per Unit

Example
Monthly Basic Telephone
Bill per Local Call
The fixed cost per local call decreases as

more local calls are made.
Number of Local Calls
Cost behaviour
Examples of normally variable costs
Merchandisers
Service Organizations
Cost of Goods Sold
Supplies and travel
Manufacturers
Merchandisers and
Manufacturers
Direct Material, Direct

labour, and Variable
Manufacturing Overhead
Sales commissions and

shipping costs
Examples of normally fixed costs

Merchandisers, manufacturers, and
service organizations
Real estate taxes, Insurance, Sales salaries
Depreciation, Advertising
The Activity Base

Units
produced
Machine
hours
A measure of the event

causing the incurrence of a
variable cost a cost driver
Miles
driven
Labour
hours
Step-Variable Costs
Cost
Total cost remains

constant within a
narrow range of
activity.
Activity
Step Costs
Cost
Total cost increases to a

new higher cost for the
next higher range of
activity.
Activity
The Linearity Assumption

and the Relevant Range
Total Cost
Economists
Curvilinear Cost
Function
Activity

Total Cost
Economists
Curvilinear Cost
Function
Accountants Straight-Line
Approximation (constant
unit variable cost)
Activity
Total Cost

Relevant
Range
AAstraight
straight line
line
closely
closely
Economists
approximates
Curvilinear Cost approximates
aa curvilinear
curvilinear
Function
variable
variable cost
cost
line
line within
within the
the
relevant
relevant
range.
range.
Accountants Straight-Line
Approximation (constant
unit variable cost)
Activity
Types of Fixed Costs

Fixed Costs
Committed
Discretionary
Long-term, cannot be
reduced in the short
term.
May be altered in the

short-term by current
managerial decisions
Examples
Examples
Depreciation on
Buildings and
Equipment
Advertising and
Research and
Development
Trend Toward Fixed Costs

Increased automation.
Increase in salaried knowledge
workers who are difficult to train
and
replace.
Implications
Implications
Managers
Managersare
aremore
morelocked-in
locked-inwith
with fewer
fewer decision
decision
alternatives.
alternatives.
Planning
Planningbecomes
becomesmore
morecrucial
crucial because
becausefixed
fixedcosts
costsare
are
difficult
difficult to
tochange
changewith
withcurrent
current operating
operatingdecisions.
decisions.
Fixed Costs and Relevant

Range
Example: Office space
is available at a rental
rate of 30,000 per
year in increments of
1,000 square metres.
As the business grows
more space is rented,
increasing the total
cost.
Continue
Rent Cost in
Thousands of pounds
Fixed Costs and Relevant

Range
90
60
30
00
Relevant
Range
Total cost doesnt

change for a wide
range of activity,
and then jumps to a
new higher cost for
the next higher
range of activity.
1,000
2,000
3,000
Rented Area (Square metres)
Semi-variable Costs
(also called mixed cost)
A semi-variable
cost
has both fixed
and variable
components.
Consider the
following electric
utility example.
Mixed Costs
Total Utility Cost
l
a
t
To
os
c
d
e
x
i
Variable
Utility Charge
Fixed Monthly
Activity (Kilowatt Hours)
Utility Charge
Mixed Costs
The total mixed cost line can be expressed
as an equation: Y = a + bX
Total Utility Cost
Where:
l
a
t
To
os
c
d
e
x
i
a
=
Y
Y = the total mixed cost
X
b
+
a = the total fixed cost (the

vertical intercept of the line)
b = the variable Variable
cost per unit of
activity (the
slopeCharge
of the line)
Utility
X = the level of activity
Fixed Monthly
Utility Charge
Mixed Costs
Total Utility Cost
m
l
a
t
To
os
c
d
e
x
i
a
=
Y
X
b
+
Variable
bX
Utility Charge
Fixed Monthly
a
Utility Charge
The High-Low Method

WiseCo recorded the following production activity and
maintenance costs for two months:
Using these two levels of activity, compute:

the variable cost per unit;
the fixed cost; and then
express the costs in equation form Y = a + bX.
The High-Low Method
Unit variable cost =
Changein cost
Change in units
The High-Low Method
Unit variable cost = 3,600 4,000 units = 0.90 per unit
The High-Low Method

Fixed cost = Total cost Total variable cost
Fixed cost = 9,700 (0.90 per unit 9,000 units)
Fixed cost = 9,700 8,100 = 1,600
The High-Low Method

Fixed cost = Total cost Total variable cost
Fixed cost = 9,700 (0.90 per unit 9,000 units)
Fixed cost = 9,700 8,100 = 1,600
Total cost = Fixed cost + Variable cost (Y = a + bX)

Y = 1,600 + 0.90X
The Scattergraph Method

Plot the data points on a
graph (total cost vs. activity).
Total Cost in
1,000s of pounds
Y
20
10
* *
* *
* ** *
**
X
0
1
2
3
4
Activity, 1,000s of Units Produced

Draw a line through the data points with about an
equal numbers of points above and below the line.
Total Cost in
1,000s of pounds
Y
20
10
* *
* *
* ** *
**
X
0
1
2
3
4
Total Cost in
1,000s of pounds
The slope of this line is the variable unit

cost. (Slope is the change in total cost
for a one unit change in activity).
20
10
* *
* *
* ** *
**
Estimated fixed cost = 10,000

0
0
1
2
3
4

Slope =
Total Cost in
1,000s of pounds
Y
20
10
* *
* *
Change in cost
Change in units
* ** *
**
Vertical
distance
is the
change
in cost.
Horizontal distance is
the change in activity.
0
1
2
3
4
Least-Squares Regression
Method
Accountants and
managers may use
computer software to fit
a regression line
through the data points.
The cost analysis
objective is the same: Y
= a + bx regression
Least-squares
Least-squares
regressionalso
also provides
providesaastatistic,
statistic, called
called
22
the
adjusted
R
the adjusted R ,,that
thatis
is aameasure
measure of
of the
thegoodness
goodness
of
of fit
fitof
ofthe
theregression
regressionline
lineto
tothe
thedata
datapoints.
points.
Least-Squares Regression
Method
R2 is the percentage of the variation
in total cost explained by the activity.
Total Cost
Y
20
* *
* *
10
* ** *
**
R2 for this relationship is near

100% since the data points are
very close to the regression line.
X
1
2
3
4
Activity
The Contribution Format
Lets put our

knowledge of cost
behaviour to work
by preparing a
contribution format
profit statement.
The contribution margin format emphasizes cost

behaviour. Contribution margin covers fixed costs
and provides for profit.
Used primarily for

external reporting.
Used primarily by
management.
Thank You
Source :
McGraw-Hill. 2002. downloaded from
http://www.slideshare.net/jhoniejhoa
n/cost-behavior-analysis
Pertanyaan
1. Koefisien Determinasi.
2. Mixed cost? Variabel cost aja?
3. Metode terbaik?

Cost Behaviour: Analysis and Use

Uploaded by

Copyright:

Available Formats

Cost Behaviour: Analysis and Use

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Cost Behaviour: Analysis and Use

Uploaded by

Copyright:

Available Formats

Cost

Types of Cost behaviour

Total Variable Cost

Total Long Distance

Your total long distance telephone bill is

Variable Cost Per Unit

The cost per minute talked is constant.

Total Fixed Cost Example

Your monthly basic telephone bill is

Number of Local Calls

Fixed Cost Per Unit

The fixed cost per local call decreases as

Number of Local Calls

Cost of Goods Sold

Supplies and travel

Direct Material, Direct

Sales commissions and

Examples of normally fixed costs

The Activity Base

A measure of the event

Total cost remains

Total cost increases to a

The Linearity Assumption

The Linearity Assumption

The Linearity Assumption

Types of Fixed Costs

May be altered in the

Trend Toward Fixed Costs

Fixed Costs and Relevant

Fixed Costs and Relevant

Total cost doesnt

Total Utility Cost

Activity (Kilowatt Hours)

Total Utility Cost

Y = the total mixed cost

a = the total fixed cost (the

Total Utility Cost

The High-Low Method

Using these two levels of activity, compute:

The High-Low Method

Unit variable cost =

The High-Low Method

Unit variable cost = 3,600 4,000 units = 0.90 per unit

The High-Low Method

Unit variable cost = 3,600 4,000 units = 0.90 per unit

The High-Low Method

Unit variable cost = 3,600 4,000 units = 0.90 per unit

Total cost = Fixed cost + Variable cost (Y = a + bX)

The Scattergraph Method

The Scattergraph Method

The Scattergraph Method

The slope of this line is the variable unit

Estimated fixed cost = 10,000

The Scattergraph Method

R2 for this relationship is near

The Contribution Format

Lets put our

The Contribution Format