Activity Analysis, Cost

Behavior, and Cost Estimation

Cost Cost Cost

Estimation Behavior Prediction
Determining Cost The relationship Forecasting the
Behavior. Often focuses between cost and level of cost at a
on historical data. activity. particular level of
activity.
 Cost Behavior Patterns
 Variable Cost
 Step-Variable Cost – increases in small steps.
Step-Variable Cost

70

60

50
Total Cost

40

30

20

10

0
0 10 20 30 40 50 60 70
Activity
Cost Behavior Patterns (Cont.)
 Fixed Costs
 Step Fixed Costs – fixed in a certain range
of activity, but jumps to a different amount
activity levels outside the range.
 Semivariable (Mixed) Costs
 Curvilinear Costs – has a curved line for it’s
graph.
 Relevant Range – the range of activity
within management expects to operate.
Cost Behavior Patterns (Cont.)

Curvilinear Cost

250000

200000

150000
Total Cost

100000

50000

0
0 40000 80000 120000
Activity
 Predicting Costs
1. Forecast Sales
2. A prediction is made for each of the cost
items.
 Engineered, Committed, and
Discretionary Costs
 Engineered Costs – has a definitive physical
relationship to the activity measure.
 Committed Costs – result from ownership
over assets (property taxes, depreciation, etc.)
 Discretionary Costs – Results from a
management decision (R&D, charity, etc.).
 Cost Estimation and Work
Measurement
 Cost Estimation
 Work Measurement