Mgt Accounting
CHAPTER 10
DETERMINING HOW COSTS BEHAVE
10-16 (10 min.) Estimating a cost function. 1. Slope coefficient = = = = $0.35 per machine-hour Constant = Total cost – (Slope coefficient Quantity of cost driver) = $5,400 – ($0.35 10,000) = $1,900 = $4,000 – ($0.35 6,000) = $1,900 The cost function based on the two observations is Maintenance costs = $1,900 + $0.35 Machine-hours
2. The cost function in requirement 1 is an estimate of how costs behave within the relevant range, not at cost levels outside the relevant range. If there are no months with zero machine-hours represented in the maintenance account, data in that account cannot be used to estimate the fixed costs at the zero machine-hours level. Rather, the constant component of the cost function provides the best available starting point for a straight line that approximates how a cost behaves within the relevant range.
5814-5733/ 30394-30,094 81/300=.27 per M.hr
10-17 (15 min.) Identifying variable-, fixed-, and mixed-cost functions.
1. See Solution Exhibit 10-17. 2. Contract 1: y = $50 Contract 2: y = $30 + $0.20X Contract 3: y = $1X where X is the number of miles traveled in the day.
3. | Contract | Cost Function | | 123 | Fixed MixedVariable |
Solution Exhibit 10-17
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Plots of Car Rental Contracts Offered by Pacific Corp.
10-18 (20 min.) Various cost-behavior patterns. 1. K 2. B 3. G 4. J Note that A is incorrect because, although the cost per pound eventually equals a constant at $9.20, the total dollars of cost increases linearly from that point onward. 5. I The total costs will be the same regardless of the volume level. 6. L 7. F This is a classic step-cost function. 8. K 9. C 10-19 (30 min.) Matching graphs with descriptions of cost and revenue behavior.
DETERMINING HOW COSTS BEHAVE
10-16 (10 min.) Estimating a cost function. 1. Slope coefficient = = = = $0.35 per machine-hour Constant = Total cost – (Slope coefficient Quantity of cost driver) = $5,400 – ($0.35 10,000) = $1,900 = $4,000 – ($0.35 6,000) = $1,900 The cost function based on the two observations is Maintenance costs = $1,900 + $0.35 Machine-hours
2. The cost function in requirement 1 is an estimate of how costs behave within the relevant range, not at cost levels outside the relevant range. If there are no months with zero machine-hours represented in the maintenance account, data in that account cannot be used to estimate the fixed costs at the zero machine-hours level. Rather, the constant component of the cost function provides the best available starting point for a straight line that approximates how a cost behaves within the relevant range.
5814-5733/ 30394-30,094 81/300=.27 per M.hr
10-17 (15 min.) Identifying variable-, fixed-, and mixed-cost functions.
1. See Solution Exhibit 10-17. 2. Contract 1: y = $50 Contract 2: y = $30 + $0.20X Contract 3: y = $1X where X is the number of miles traveled in the day.
3. | Contract | Cost Function | | 123 | Fixed MixedVariable |
Solution Exhibit 10-17
-------------------------------------------------
Plots of Car Rental Contracts Offered by Pacific Corp.
10-18 (20 min.) Various cost-behavior patterns. 1. K 2. B 3. G 4. J Note that A is incorrect because, although the cost per pound eventually equals a constant at $9.20, the total dollars of cost increases linearly from that point onward. 5. I The total costs will be the same regardless of the volume level. 6. L 7. F This is a classic step-cost function. 8. K 9. C 10-19 (30 min.) Matching graphs with descriptions of cost and revenue behavior.