Chapter 6 - Activity analysis, cost behavior, and cost estimation. After completing this chapter, you should be able to: Explain the relationships between cost estimation, cost behavior, and cost prediction; define and describe the behavior of the following types of costs: variable, step-variable, fixed, step-fixed, semivariable (or mixed), and curvilinear; explain the importance of the relevant range in using a cost behavior pattern for cost prediction. | Activity Analysis, Cost Behavior, and Cost Estimation Chapter 6 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 6: Activity Analysis, Cost Behavior, and Cost Estimation Cost prediction Using knowledge of cost behavior to forecast level of cost at a particular activity. Focus is on the future. Introduction Cost behavior Relationship between cost and activity. Process of determining cost behavior, often focuses on historical data. Cost estimation 6- How does a managerial accountant determine the cost behavior pattern for a particular cost item? The determination of cost behavior, which is often called cost estimation, can be accomplished in a number of ways. One way is to analyze historical data concerning costs and activity levels. The relationship between cost and activity, called cost behavior, is relevant to the management functions of planning, control, and decision making. In order to plan operations and prepare a budget, managers need to predict the costs that will be incurred at different levels of activity. Knowledge of cost behavior will help the manager to make the desired cost prediction. A cost prediction is a forecast of cost at a particular level of activity. (LO1) Total Variable Cost Example Your total Pay Per View bill is based on how many Pay Per View shows that you watch. Number of Pay Per View shows watched Total Pay Per View Bill 6- A variable cost changes in total in direct proportion to a change in the activity level (or cost driver). For example, assume that you pay $ for each Pay Per View show that you watch. The more shows that you watch, the higher your Pay Per View bill will be. The total cost of the Pay Per View bill increases in direct proportion to the number of shows watched. Your text book describes the raw materials that goes into making donuts are also variable costs―the more donuts you make the higher the . | Activity Analysis, Cost Behavior, and Cost Estimation Chapter 6 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 6: Activity Analysis, Cost Behavior, and Cost Estimation Cost prediction Using knowledge of cost behavior to forecast level of cost at a particular activity. Focus is on the future. Introduction Cost behavior Relationship between cost and activity. Process of determining cost behavior, often focuses on historical data. Cost estimation 6- How does a managerial accountant determine the cost behavior pattern for a particular cost item? The determination of cost behavior, which is often called cost estimation, can be accomplished in a number of ways. One way is to analyze historical data concerning costs and activity levels. The relationship between cost and activity, called cost behavior, is relevant to the management functions of planning, control, and decision
