Cost Behavior

1
Cost Behavior

• Variable Costs
• Fixed Costs
• Mixed Costs

2
Relevant Range

• The range within which the attributes of a cost
  are constant.

3
Mixed Cost Analysis

• Y mx b
• y dependent variable
• x independent variable
• m slope of variable relationship
• b y-intercept or level of fixed cost
• Scattergraph (scatterplot) or visual
• High-Low
• Least Squares (regression analysis)

4
High-Low

• Compare highest variable pair with lowest
  variable pair
• Compute variable relationship
• Insert into standard formula with either high or
  low variable pairs
• Solve for the fixed component

5
Regression Analysis

• Solve the following simultaneous equations
• (?xy a?x b?x2)
• (?y na b?x)

6
Contribution Margin Format

• Traditional Format
• Sales
• - COGS
• Gross Margin
• - Operating Expenses
• Net Income

• C/M Format
• Sales
• - Variable Costs
• Contribution Margin
• - Fixed Costs
• Net Income