STUDENT EDITION

MANAGEMENT
ACCOUNTING
PowerPoint Presentation by 8th EDITION
Gail B. Wright
Professor Emeritus of Accounting BY
Bryant University
© Copyright 2007 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under
HANSEN & MOWEN
license.

3 ACTIVITY COST BEHAVIOR

1
 LO 1

If Reddy Heaters produces

twice as many heaters as last
year, will production costs
double?

NO. Variable costs will double if

production doubles but fixed
costs will not change.

4
 LO 1

FIXED COST: Definition

Fixed costs do not vary over the

relevant range.
Reddy Heaters: 1 cutting
machine costs $60,000 per year
& can produce up to 240,000, 3-
inch segments

5
 LO 1

VARIABLE COST: Definition

Variable costs vary in direct

proportion to changes in output.
Reddy Heaters: 1 segment uses
0.1 kilowatts at cost of $2.00 per
kilowatt. Each segment costs
$.20.

6
¯Beside Fixed and Variable Cost, We also have
Mixed Cost
¯What is Mixed Cost?

7
 LO 1

MIXED COST: Definition

Mixed costs have a variable and

a fixed component.
Reddy Heaters: sales people
earn a $10,000 salary + $0.50
commission on each heater sold.

8
 LO 1

COST BEHAVIOR ACTIVITIES

¯Every activity has a
¯Time horizon for measurement
¯Resources to accomplish the task
¯Materials
Materials
¯Labor
Labor
¯Capital
Capital
¯Output measures (activity drivers)

9
 LO 2

CAPACITY: Definition

Capacity for an activity is the

amount
amount of anofactivity
an activity a
a company
company can perform.
can perform.
Practical capacity is the level at
which company can perform
efficiently.

10
 LO 2

How much capacity does a

company need? What happens
if there is excess capacity?

Need for capacity depends on

level of performance required.
Excess capacity affects cost
behavior.

11
 LO 2

FLEXIBLE RESOURCES
¯Are resources that can be acquired as needed
¯No long term commitment
¯Quantity supplied = quantity demanded
¯>>>>>NO EXCESS CAPACITY
¯Example: direct materials

12
 LO 2

COMMITTED RESOURCES
¯Are resources acquired in advance of usage
¯Often have long term commitment
¯Quantity supplied (often) ≠ quantity demanded
¯>>>>> MAY MEAN EXCESS CAPACITY
¯Example: factory building

13
 LO 2

COMMITTED RESOURCES:
Can Be

Committed fixed costs, such as

a building or equipment bought,
leased; or
Committed discretionary
costs, such as implicit contracts
with employees.

14
 LO 2

STEP COST: Definition

Step-costs exhibit a discontinuous

behavior pattern.
Step-costs are constant for a certain
range of output, then jump to another
level, remaining constant again over a
certain range of output.

15
 LO 2

CHANGE ORDER EQUATIONS

CHANGE ORDER = Fixed Cost + Variable Cost
= Engineering Cost + Supply Cost
Total committed cost
Fixed activity rate = Total capacity available

Variable activity rate = Total cost of flexible resources

Total capacity available

16
 LO 3

LINEARITY ASSUMPTION
Variable cost
assumes a linear
relationship
between cost and
activity driver.

EXHIBIT 3-7
17
 LO 3

HIGH-LOW EQUATIONS

Variable rate = Change in cost / Change in output

(High cost – Low cost) / (High output – Low output)
Fixed cost =
Total cost for high (Low) point
{Variable rate x High (Low) output}

18
 LO 3

SCATTERPLOT METHOD
Scatterplot is a
method of
determining the
equation of a line by
plotting the data on
a graph.

EXHIBIT 3-11
19
 LO 3

What are the advantages,

disadvantages of scatterplot?

Scatterplot
¯Allows you to see the data BUT
¯It lacks any objective criterion
for choosing the best-fitting line

20
 LO 3
SCATTERPLOT
ADVANTAGE
Can you see why
the high-low
method doesn’t
always provide the
best cost equation?

EXHIBIT 3-12
21
 LO 3

LEAST SQUARES

EXHIBIT 3-13 22
 LO 4

How reliable is the cost

equation developed by the
least squares method?

R2, the coefficient of

determination, and the
coefficient of correlation will tell
you the goodness of fit of your
cost equation.

23
 LO 4

COEFFICIENT OF DETERMINATION (R2)

¯Percentage of variability in dependent

variable explained by independent
variable
¯Range: 0 – 1
¯Higher is better

24
 LO 4

COEFFICIENT OF CORRELATION

¯Square root of coefficient of

determination
¯Measures whether variables move in
same (+) or opposite (-) directions
¯Range: -1 - +1

25
 LO 5

MULTIPLE REGRESSION: Definition

Multiple regression uses 2 or more

independent variables (variable
costs) in addition to the y-intercept
(fixed cost) to explain the
dependent variable.

26
 LO 6

MANAGERIAL JUDGMENT
¯Is a method of cost assignment used to
¯Determine fixed, variable cost
¯Uses managerial experience
¯Uses past observation of cost relationships
¯To refine statistical estimation results
¯Advantage: simplicity
¯Disadvantage: judgment errors

27
 Contoh Soal
¯ Kaylin Manufacturing Company memiliki 3 orang
staf bagian utang usaha yang bertanggung jawab
atas pemrosesan faktur pembelian. Setiap staf
dibayar dengan gaji tetap sebesar $30,000 dan
1. Tarif aktivitas = [(3 x $30,000)+ $9,000]/15.000 = $6.6
Tarif aktivitas tetap = $90,000/15,000 = $6.0
Tarif aktivitas variable = $9,000/15,000 = $0.6
JAWAB
2. Ketersediaan aktivitas = penggunaann aktivitas + Aktivitas tak terpakai
15.000 faktur = 12.500 faktur + 2.500 faktur
3. Biaya sumber daya yg dipasok = Biaya aktivitas yg digunakan + biaya aktivitas tak terpakai
$90,000 + ($0.6 x 12.500) = ($6.6 x 12.500) + ($6.0 x 2.500)

mampu memproses 5.000 faktur pertahun (jika

bekerja secara efisien). Selain gaji, Kaylin
mengeluarkan $9,000 per tahun untuk formulir,
perangko, cek, dll. (dengan asumsi 15.000 faktur
yang diproses). Selama tahun berjalan, 12.500
faktur telah diproses.
Diminta:
1) Hitung tariff aktivitas untuk aktivitas pesanan
pembelian dan bagilah aktivitas tersebut ke dalam
komponen tetap dan variable!
2) Hitung jumlah ketersediaan aktivitas dan bagilah
ke dalam penggunaan aktivitas dan aktivitas tak
terpakai!
3) Hitung jumlah biaya sumber daya yang dipasok
dan bagilah ke dalam penggunaan aktivitas dan
aktivitas tak terpakai!
28
Contoh Soal
Bulan ke- Paket yg Jumlah Biaya
dikirim Pengiriman (dalam $)
1 10 800
2 20 1.100
3 15 900
4 12 900
5 18 1.050
6 25 1.250
Kim Wilson pengontrol Max
Entreprises memutuskan untuk
memperkirakan komponen tetap dan
variable yang berhubungan dengan
aktivitas pengiriman perusahaan. Dia
menyimpulkan data dlm table di atas
untuk enam bulan terakhir. Diminta:
1. Estimasi komponen tetap dan
variable untuk biaya pengiriman
dengan metode hi-low!
2. Berdasar rumus yg diperoleh,
prediksi jumlah biaya pengiriman
jika 14 paket dikirim! 29
CHAPTER 3

THE END

30