ACCTG322 Lecture Notes - Lecture 5: Scatter Plot, Cost Driver, Watt

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goldhound544

17 Apr 2015

School

University of Alberta

Department

Accounting

Course

ACCTG322

Professor

Sanjay Banerjee

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Document Summary

Objectives: behavior of fixed and variable costs, relevant range, marginal costs versus average costs, analysis of mixed costs, scatter diagram method, high-low method, least-squares regression method. Total variable cost is proportional to the activity level within the relevant range. Total fixed cost remains the same even when the activity level changes within the relevant range. Variable cost per unit remains the same over wide ranges of activity. Fixed cost per unit goes down as activity level goes up. True variable cost: a variable cost is a cost whose total dollar amount varies in direct proportion to changes in the activity level. Your total texting bill is based on how many texts you send. Variable cost per unit example: a variable cost remains constant if expressed on a per unit basis. Your monthly contract fee for your cell phone is fixed for the number of monthly minutes in your contract.

Related Questions

1. Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range?

A. Average cost per unit.

B. Variable cost per unit.

C. Unit fixed cost.

D. Total variable cost.

2. The relevant range refers to the activity levels over which

A. Cost relationships hold constant.

B. Costs fluctuate.

C. Production varies.

D. Relevant costs are incurred.

3. When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior?

A. General and administrative costs are assumed to be variable costs.

B. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity.

C. Total costs are assumed to be linear when plotted on a graph.

D. The relevant time period is assumed to be 5 years.

4. A management accountant is about to prepare graphs of total variable cost and per-unit variable cost for use in a short-term planning model. Dollars will be depicted on the vertical axis; activity will be shown on the horizontal axis. How will these graphs appear under completion?

Total Variable Cost; Per-Unit Variable Cost

A. Straight line, sloping upward to the right; Straight line, parallel to the horizontal axis

B. Curvilinear, sloping upward to the right; A line that basically parallels the horizontal axis, first decreasing and then increasing

C. Straight line, sloping upward to the right; Straight line, sloping upward to the right

D. Straight line, parallel to the horizontal axis; Straight line, sloping upward to the right

5. A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?

A. The total electricity cost will increase as production volume increases.

B. The total electricity cost per unit of production will increase as production volume increases.

C. The variable electricity cost per unit of production will remain constant as production volume increases.

D. The fixed electricity cost per unit of production will decline as production volume increases.

silversnake284

Match the items in the two columns below by entering theappropriate code letter in the space provided.

The amount of revenue remaining after deducting variablecosts.
Costs that contain both a variable and a fixed element.
The percentage of sales dollars available to cover fixed costsand produce income.
Identifies the activity which causes changes in the behavior ofcosts.
The difference between actual or expected sales and sales atthe break-even point.
Costs that vary in total directly and proportionately withchanges in the activity level.
The level of activity at which total revenues equal totalcosts.
The range over which the company expects to operate during theyear.
Costs that remain the same in total regardless of changes inthe activity level.
A costing approach in which all manufacturing costs are chargedto the product.
A method that uses the total costs incurred at the high and lowlevels of activity.
A costing approach in which only variable manufacturing costsare product costs and fixed manufacturing costs are period costs(expenses).

1.	Activity index
2.	Variable costs
3.	Fixed costs
4.	High-low method
5.	Relevant range
6.	Mixed costs
7.	Break-even point
8.	Contribution margin
9.	Variable costing
10.	Absorption costing

orangetermite875

The following data have been extracted from the records of Puzzle, Inc.:

	February		August
Production level, in units		11,800		25,960
Variable costs	$	33,040	$	?
Fixed costs		?		32,500
Mixed costs		29,120		?
Total costs	$	94,660	$	161,212

Required:

a. Calculate the missing costs. (Do not round intermediate calculations.)

b. Calculate the cost formula for mixed cost using the high-low method. (Do not round intermediate calculations. Round "Variable cost" to 2 decimal places.)

cost formula _____ + _____ per unit

c. Calculate the total cost that would be incurred for the production of 16,949 units. (Do not round intermediate calculations.)

Total cost ____

d. Identify the two key cost behavior assumptions made in the calculation of your answer to part c.

cost behavior pattern is ____ relevant range ____

ACCTG322 Lecture Notes - Lecture 5: Scatter Plot, Cost Driver, Watt

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