Chapter 4 - Cost-volume-profit analysis. This chapter presents the following content: Management questions, common cost behavior patterns, variable costs, fixed costs, mixed costs, relevant range, cost estimation methods, scattergraphs,. | Prepared by Debby Bloom-Hill CMA, CFM 1 Cost-Volume-Profit Analysis Slide 4-2 CHAPTER 4 Management Questions Planning What level of profit should be in the budget for the coming year? Control Did the manager responsible for production costs do a good job of controlling costs? Decision making Should the price be increased? Learning objective 1: Identify common cost behavior patterns, and estimate the relation between cost and activity using account analysis and the high-low method. Slide 4-3 Variable Costs Costs which change directly in proportion to changes in quantity or activity Fixed Costs Costs which do not change when quantity or activity volume changes Common Cost Behavior Patterns Slide 4-4 Learning objective 1: Identify common cost behavior patterns, and estimate the relation between cost and activity using account analysis and the high-low method. Mixed Costs Costs that have both variable and fixed elements Step Costs Fixed for a range of output, but increase when upper bound | Prepared by Debby Bloom-Hill CMA, CFM 1 Cost-Volume-Profit Analysis Slide 4-2 CHAPTER 4 Management Questions Planning What level of profit should be in the budget for the coming year? Control Did the manager responsible for production costs do a good job of controlling costs? Decision making Should the price be increased? Learning objective 1: Identify common cost behavior patterns, and estimate the relation between cost and activity using account analysis and the high-low method. Slide 4-3 Variable Costs Costs which change directly in proportion to changes in quantity or activity Fixed Costs Costs which do not change when quantity or activity volume changes Common Cost Behavior Patterns Slide 4-4 Learning objective 1: Identify common cost behavior patterns, and estimate the relation between cost and activity using account analysis and the high-low method. Mixed Costs Costs that have both variable and fixed elements Step Costs Fixed for a range of output, but increase when upper bound of range is exceeded Common Cost Behavior Patterns Slide 4-5 Learning objective 1: Identify common cost behavior patterns, and estimate the relation between cost and activity using account analysis and the high-low method. Variable Costs Costs that change in proportion to changes in volume or activity An automobile manufacturer will need 400 tires to make 100 cars, but 4,000 tires to make 1,000 cars A bakery will need 2 eggs to make 1 cake and 20 eggs to make 10 cakes If activity increases by a certain percentage, cost increases by that same percentage Slide 4-6 Learning objective 1: Identify common cost behavior patterns, and estimate the relation between cost and activity using account analysis and the high-low method. A company has decided that direct labor costs are 100% variable. Last month total direct labor costs were $125,000 and total direct labor hours worked were 10,000. What is the direct labor cost per hour? $125,000 / 10,000 hours = $ per hour Predict labor costs in
