AT&T 3:34 PM c @22% D Define the terms cosu behavio ,ldenify some common activit
ID: 2338250 • Letter: A
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AT&T 3:34 PM c @22% D Define the terms cosu behavio ,ldenify some common activity bases in terms of which the volume of a manufactaring operation might be and relevant range 01,2 LO1 eral eriterion might be used in choosing an activity base? define briefly the three most widely recognized cost behavioe paterns. 1 Nane and Exp (a) how a mised cost can be considered "partly flxed and partly variabile," and (b) why a firm's L01,3 otal cost is best repeesented by the mixed cost patterm s, Briefly describe the two most straightforwaed tochniques for dividing a mixed cost into its fixed and vari LO3 abile componenes. Actual costs often behave in a nonlinear fashice Therefoee, assomptions of linearity invalidate most cost LO2 ehavior analyses." Do you agree or disagree with this stanement? Briefly defend your position 1. Describe how fixed and variable costs per unit respond to volume increases s Present a formula based on units for planning total cost, and explain how mixed costs are incorporated into LO1, 3 Lo3 the formula s. Define and briefly explain three appeoaches so beeak-even analysis a Patrick's Bakery Shop has fixed costs per month o(53600, and variable costs are 55% of sales. What LO4 LO4Explanation / Answer
1.
Cost behaviour is sensitivity of costs to changes in level of production i.e. how cost changw with change in total production units.
Relevant range represents the production bracket within which fixed costs are indeed fixed. I.e units produced for which fixed costs need not be increased.
2.
Some common Activity Base under which the volume of manufacturing overhead might be stated are:
Machine running - Machine hours
Depreciation - Machine hours
Labor wages - Labor hours
Material Costs - Purchase Requisitions
The general criterion that may be used in choosing a activity base is identifying cost pools i.e. primary and secondary to find the best allocable base that is related to that particular activity.
3.
The 3 most widely used cost behavior patterns are Variable costs, fixed Costs and Semi variable Costs.
Variable Costs - These are the costs which change with the change in level of production i.e. total variable costs change with change in production but per unit variable cost remains the same.
Fixed cost - These are the costs that remain same for any level of production. The total cost remins the same and is not expressed as per unit.
Semi-Variable Costs - The costs have both the fixed and variable component in them. There is a fixed cost that is incurred for a certain level of production but as the production increases the variable costs rises. Tere will be fixed costs even if there is no production.
4.
(a) Mixed cost has both fixed and variable component in it. There is a fixed cost that is incurred for a certain level of production but as the production increases the variable costs rises. Tere will be fixed costs even if there is no production.
Y = a + bX
Y = mixed cost
a = foxed Cost
b = variable cost per unit
X = units
(b) Mixed cost is best representative because it has both fixed and variable component. The costs are shown adequate neither less nor high.
5.
Methods to divide Mixed costs:
* Scattergraph - It is plotting a graph and the point on Y axis when the line starts is Fixed cost and slope indicates the variable cost.
* High Low Method - The highest and the lowest point on graph is taken.
Variable Cost = (Total cost H - Total cost L) / (Units Produced H - Units Produced L)
Fixed cost can taken as difference of total and variable costs.
6.
Yes, I agree with this statement. Actual costs have properties of both fixed and variable component in them. Fixed costs are linear i.e. a straight line parallel to x axis but fixed costs per unit keps on decreasing whereas that of variabl remains same. So, the total cost per unit is a non linear fashion.
7.
Total variable cost increases to volume increase but per unit variable cost remains the same.
Total fixed cost per unit remains same to volume increases but per unit fixed costs decreases with volume increases.
8.
Y = a + bX
Y = mixed cost/Total Costs
a = foxed Cost
b = variable cost per unit
X = units
9.
Breakeven analysis is the point where total revenue is equal to total cost i.e. no profit no loss.
3 approaches are:
* Graphical Method - We plot a graph of Total revenue, total cost, fixed costs and the point where total revenue and expenses cross each other is Breakeven point.
* Equation Method - Sales = Variable Expense + Fixed Expense
* Contribution Margin Method -
Breakeven Units sold = Fixed Expense/Unit Contribution Margin
Breakeven Total Sales = Fixed Expense/Contribution Margin
10.
Fixed Costs = 3600 i.e. 45%
Variable Costs = 55% i.e. 4400
Breakeven sales = 3600+4400 = 8000
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