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Activity Cost Behavior
Activity Cost Behavior
MANAGEMENT
PowerPoint Presentation by ACCOUNTING
Gail B. Wright
Professor Emeritus of Accounting 8th EDITION
Bryant University
BY
© Copyright 2007 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license.
HANSEN & MOWEN
3
LO 1
4
LO 1
FIXED
FIXED COST:
COST: Definition
Definition
5
LO 1
VARIABLE
VARIABLE COST:
COST: Definition
Definition
6
LO 1
MIXED
MIXED COST:
COST: Definition
Definition
7
LO 1
8
LO 2
CAPACITY:
CAPACITY: Definition
Definition
9
LO 2
10
LO 2
FLEXIBLE RESOURCES
11
LO 2
COMMITTED RESOURCES
12
LO 2
COMMITTED
COMMITTED RESOURCES:
RESOURCES:
Can
Can Be
Be
13
LO 2
STEP
STEP COST:
COST: Definition
Definition
14
LO 2
15
LO 3
LINEARITY ASSUMPTION
Variable
Variablecost
cost
assumes
assumesaalinear
linear
relationship
relationship
between
betweencost
costand
and
activity
activitydriver.
driver.
EXHIBIT 3-7
16
LO 3
HIGH-LOW EQUATIONS
17
LO 3
SCATTERPLOT METHOD
Scatterplot
Scatterplotisisaa
method
methodof of
determining
determiningthethe
equation
equationofofaaline
linebyby
plotting
plottingthe
thedata
dataonon
aagraph.
graph.
EXHIBIT 3-11
18
LO 3
Scatterplot
Allows you to see the data BUT
It lacks any objective criterion
for choosing the best-fitting line
19
LO 3
SCATTERPLOT ADVANTAGE
EXHIBIT 3-12
20
LO 3
LEAST SQUARES
EXHIBIT 3-13
21
LO 4
22
LO 4
COEFFICIENT OF
DETERMINATION (R2)
Percentage of variability in dependent
variable explained by independent
variable
Range: 0 – 1
Higher is better
23
LO 4
COEFFICIENT OF CORRELATION
24
LO 5
MULTIPLE
MULTIPLE REGRESSION:
REGRESSION: Definition
Definition
25
LO 6
MANAGERIAL JUDGMENT
Is a method of cost assignment used to
Determine fixed, variable cost
Uses managerial experience
Uses past observation of cost relationships
To refine statistical estimation results
Advantage: simplicity
Disadvantage: judgment errors
26
CHAPTER 3
THE
THE END
END
27