Chapter 29 - Controlling manufacturing costs: standard costs. After reading this chapter, you should be able to: Explain how fixed, variable, and semivariable costs change as the level of manufacturing activity changes; use the high-low point method to determine the fixed and variable components of a semivariable cost; prepare a fixed budget for manufacturing costs; develop a flexible budget for manufacturing costs;. | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Controlling Manufacturing Costs: Standard Costs Section 1: Cost Behavior and the Budget Section Objectives Explain how fixed, variable, and semivariable costs change as the level of manufacturing activity changes. Use the high-low point method to determine the fixed and variable components of a semivariable cost. Prepare a fixed budget for manufacturing costs. Develop a flexible budget for manufacturing costs. Chapter 29 Variable Costs Variable costs vary in total in direct proportion to the changes in the level of activity. Direct materials and direct labor are examples of variable costs. Direct Materials 1 unit = $ 5 1,000 units = $ 5,000 4,000 units = $20,000 The total variable cost change, but the cost per unit does not change. Fixed Costs Fixed costs do not change in total as the total level of activity changes. Although fixed costs do not change in total as the level of . | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Controlling Manufacturing Costs: Standard Costs Section 1: Cost Behavior and the Budget Section Objectives Explain how fixed, variable, and semivariable costs change as the level of manufacturing activity changes. Use the high-low point method to determine the fixed and variable components of a semivariable cost. Prepare a fixed budget for manufacturing costs. Develop a flexible budget for manufacturing costs. Chapter 29 Variable Costs Variable costs vary in total in direct proportion to the changes in the level of activity. Direct materials and direct labor are examples of variable costs. Direct Materials 1 unit = $ 5 1,000 units = $ 5,000 4,000 units = $20,000 The total variable cost change, but the cost per unit does not change. Fixed Costs Fixed costs do not change in total as the total level of activity changes. Although fixed costs do not change in total as the level of activity changes, the cost per unit does change. Factory Supervisory Salaries Units Produced Cost Per Unit $10,000/month 2,000 $ $10,000/month 2,500 $ Semivariable Costs Semivariable costs vary with, but not in direct proportion to, the volume of activity. Utilities are an example of a semivariable cost: Fixed portion Usage will vary in proportion to level of production. Variable portion Needed no matter how many units produced. Step 1. Determine the production and cost data for the months of highest and lowest production during the past year. Step 2. Compute the difference in direct labor hours, and the difference in utilities costs, in the months of highest and lowest production. Step 3. Compute the variable cost per direct labor hour. Semivariable expense: utilities Difference in utilities costs ÷ Difference in direct labor hours Step 4. Compute the fixed cost for a month. Total cost – (direct labor hours x cost per direct labor hour) High-Low Point Method Fixed .
