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Lecture

Chapter 3 ACC 406.docx

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Department
Accounting
Course
ACC 406
Professor
Anthony Chan
Semester
Winter

Description
Chapter 3: Cost Behaviour  The relationship between cost and activity volume  Variable cost + fixed cost = total cost 3 methods of calculation:  High-low method  Scatterplot method  Method of least squares To estimate the cost formula Total Cost = Total Fixed Cost + (variable cost per unit) (activity unit) Y = F+ (V) (X) 1) High Low Method Month Total Cost Unit Produced Jan (low) $2,000 200 Feb $2,500 400 March $4,500 600 April $5,000 800 May (high) $7,500 1000 Variable Method = Y HY /.L -H L = 7500-2000/ 1000-200 = $6.875 per unit F = YH- (V)(X H F = 2000 – ($6.875)(200) = 625 2) Scatterplot Methods Pros Cons High- Low More objective Only considers two data points Scatterplot Considers all data points Too subjective Method of Least Squares More objective, consi
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