ACCT 202 Chapter 18: Acct Chapter 18

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Cvp analysis is used to answer questions such as: Mixed costs contain a fixed portion that is incurred even when the facility is unused, and a variable portion that increases with usage. Ex: fixed service fee, variable charge per kilowatt hour used. Total cost remains constant within a narrow range of activity. The objective is to classify all costs as either fixed or variable. When presented with a mixed cost, the fixed and variable components must be separated. Unit variable cost = slope = change in cost / change in units. The following relationship between units produced and costs are observed. Unit variable cost = (29,000-20,500)/(67,000-17,500) = 0. 1717 / unit. Fixed cost = 29,000 - (. 17 per unit * 67,500 units) Fixed cost = 29,000 - 11,475 = 17,525. Least-squares regression is usually covered in advance cost accounting courses. It is commonly used with spreadsheet program or calculators.

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