Managerial Accounting: An Introduction To Concepts, Methods, And Uses

1
Managerial Accounting An Introduction To
Concepts, Methods, And Uses

• Chapter 5
• Cost Drivers and Cost Behavior

Maher, Stickney and Weil
2
Learning Objectives (Slide 1 of 2)

• Distinguish between variable costs fixed costs,
  between short run long run, and define the
  relevant range.
• Identify capacity costs, committed costs,
  discretionary costs.
• Describe the nature of the various cost behavior
  patterns.
• Describe how managers use cost behavior patterns.
• Explain how to use historical data to estimate
  costs.

3
Learning Objectives (Slide 2 of 2)

• Describe how analysts estimate cost behavior
  using regression, account analysis, engineering
  methods.
• Explain the costs, benefits, weaknesses of the
  various cost estimation methods.
• Identify the derivation of learning curves.
  (Appendix 5.1)
• Interpret the results of regression analyses.
  (Appendix 5.2)

4
Describe the Nature of Fixed Variable Costs

• Variable costs - change in total as the level of
  activity changes
• Also known as an engineered cost
• There is a definitive physical relationship to
  the activity measure
• Fixed costs - do not change in total with changes
  in activity levels. What is the equation?

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Describe the Nature of Fixed Variable Costs
(Continued)
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Types of Fixed Costs (Slide 1 of 2)

• Define Capacity costs-

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Types of Fixed Costs (Slide 2 of 2)

• Define Discretionary costs

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Other Cost Behavior Patterns (Slide 1 of 2)

• Define Curvilinear variable costs

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Other Cost Behavior Patterns (Slide 2 of 2)

• Define Learning curves

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Define Semivariable Costs

• Refers to costs that have both variable and fixed
  components
• Examples repair and maintenance costs, utility
  costs

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Describe Semifixed Costs

• Refers to costs that increase in steps
• Example A quality-control inspector can examine
  1,000 units per day. Inspection costs are
  semifixed with a step up for every 1,000 units
  per day
• Distinction between fixed and semifixed is subtle
• Change in fixed costs usually involves a change
  in long-term assets a change in semifixed costs
  often does not

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Cost Estimation Methods

• Cost estimates are used in various business
  decisions, planning exercises, and performance
  evaluations
• List the Three methods discussed

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Estimating Costs Using Historical Data (Slide 1
of 2)

• Trying to estimate fixed and variable costs using
  the following formula
• TCF VX
• Where TC Total Costs
• F Fixed Costs
• V Variable Costs
• X Activity Variable

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Estimating Costs Using Historical Data (Slide 2
of 2)

• The following steps should be taken in analyzing
  cost data
• Review alternative cost drivers
• Plot the data
• Examine the data and method of accumulation

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Statistical Regression Analysis (Slide 1 of 2)

• Used to estimate the relationship between costs
  and the activity that caused, or is closely
  associated with, those costs
• Costs are the dependent variable(s)
• Activity level is the independent variable
• Fits the data points to a line using
  least-squares criterion

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Statistical Regression Analysis (Slide 1 of 2)

• Results of this analysis yield an estimate of
  both the fixed component and the cost driver
  rates (variable component)

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Discuss Account Analysis
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Engineering Method of Estimating Costs

• The engineering method indicates what costs
  should be
• Analysts study the physical relation between the
  quantity of inputs and outputs
• Determine the steps required to perform the task,
  the time needed to complete each step, the number
  type of employees required, the materials
  other inputs needed
• The accountant assigns costs to each of the
  inputs to estimate the cost of the outputs

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What are some common data problems?
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Review Interpreting Regression Analysis Output
(Slide 1 of 3)
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Review Interpreting Regression Analysis Output
(Slide 2 of 3)
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Review Interpreting Regression Analysis Output
(Slide 3 of 3)
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What is R2?
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What are some cautions when using regression?
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• If you have any comments or suggestions
  concerning this PowerPoint Presentation for
  Managerial Accounting, An Introduction To
  Concepts, Methods, And Uses, please contact
• Dr. Michael Blue, CFE, CPA, CMA
• blue_at_bloomu.edu
• Bloomsburg University of Pennsylvania