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Lecture 5

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University of Ottawa

Administration

ADM2304

Tony Quon

Fall

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Y = a + bX Y = 40 + (0.03 2,000) Y = 100 Analysis of Mixed Costs: a. Account Analysis: Each account is classied as either variable or xed based on the analysts knowledge of how the account behaves. b. Engineering Approach: Cost estimates are based on an evaluation of production methods, and material, labour and overhead requirements The Scattergram Plot: > Plot the data points on a graph (total cost vs. activity), then draw a line through the data points with about an equal numbers of points above and below the line, se one data point to estimate the total level of activity and the total cost. > make a quick estimate of variable cost per unit and determine the cost equation. The HighLow Method: > The variable cost per hour of maintenance is equal to the change in cost divided by the change in hours. > 2400300 =8 an hour Total Fixed Cost = Total Cost Total Variable Cost Total Fixed Cost = 9,800 (8hour 800 hours) Total Fixed Cost = 9,800 6,400 Total Fixed Cost = 3,400 The Cost Equation for Maintenance: Y = 3,400 + 8.00 e.g, Sales salaries and commissions are 10,000 when 80,000 units are sold, and 14,000 when 120,000 units are sold. Using the highlow method, what is the variable portion of sales salaries and commission? a. 0.08 per unit b. 0.10 per unit(14 000 10 000)(120 00080 000)

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