Managerial Accounting and Cost Concepts

1
Managerial Accounting and Cost Concepts

• Contribution Format
• High Low Method
• Least Squares Method

2
The Contribution Format
Lets put our knowledge of cost behavior to work
by preparing a contribution format income
statement.
3
The Contribution Format
4
The Contribution Format
5
Mixed Costs
Total mixed cost
Total Utility Cost
Variable Cost per KW
Fixed MonthlyUtility Charge
Activity (Kilowatt Hours)
6
The Scattergraph Method
Use one data point to estimate the total level of
activity and the total cost.
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7
The High-Low Method
The variable cost per hour of maintenance is
equal to the change in cost divided by the change
in hours.
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The High-Low Method
Total Fixed Cost Total Cost Total Variable
Cost
Total Fixed Cost 9,800 (6/hour 850 hours)
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The High-Low Method An Example
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Least-Squares Regression Method
A method used to analyze mixed costs if a
scattergraph plot reveals an approximately linear
relationship between the X and Y variables.
This method uses all of thedata points to
estimatethe fixed and variablecost components
of amixed cost.
The goal of this method isto fit a straight line
to thedata that minimizes thesum of the squared
errors.
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Least-Squares Regression Method

• Software can be used to fit a regression line
  through the data points.
• The cost analysis objective is the same Y a
  bX

Least-squares regression also provides a
statistic, called the R2, which is a measure of
the goodnessof fit of the regression line to the
data points.
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End of Chapter 02