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STRAT COST COST Behavior Analyis

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Glea Mae Camu
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25 views

STRAT COST COST Behavior Analyis

Uploaded by

Glea Mae Camu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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PRESENTATION OF COSTS

CONTRIBUTION MARGIN
APPROACH

SALES / REVENUE

LESS:
TOTAL VARIABLE COSTS
CONTRIBUTION MARGIN TOTAL COST
LESS:
TOTAL FIXED COSTS
OPERATING PROFIT
What is Cost Behavior?
Cost behavior is the study on how the firm’s costs respond to changes
in activity levels or cost drivers within the company. In other words,
cost behavior analyzes the reaction of a certain cost in response to a
change in cost driver.
COST TERMINOLOGIES
1. Cost Driver- is an item or event that has cause and effect
relationship with incurrence of a cost. It is the unit of an activity
that causes the change in activity costs.

2. Cost pools- is a grouping of individual cost items.


COST EQUATION
TOTAL FIXED
COST

TOTAL COST
Y = a + b (x) COST DRIVER

UNIT VARIABLE
COST

• a and b are constants


• b is the slope of the line
• Y is the dependent variable
• X is the independent variable
1. ACCOUNT ANALYSIS
Account analysis is a cost analysis method that requires a review of
accounts by experienced employees or even management to determine
whether the cost in each account are fixed or variable.

This requires the use of trend analysis, in past experience in judging


whether a cost is fixed or variable.
2. CONFERENCE METHOD
Conference method estimates cost functions through analyses and
opinions of costs and their drivers from various departments of a
company.

Conference method is a variation of account analysis method because


this method looks at the different parts of an organization to get
different perspectives about how to estimates cost.
3. ENGINEERING METHOD
Industrial engineering method is a physical way of examining the
relationship between cost drivers and cost by analyzing the inputs
coming into the company, the outputs that are created, and the works
that go into process.

By measuring the input and output of such physical terms, analyst can
create representations of cost functions and equations.
4. SCATTERGRAPH METHOD

Scatter graph method also known as visual fit method is a graphical


technique separating fixed and variable components of mixed cost by
plotting activity level along X-axis and corresponding total cost (mixed
cost) along Y-axis.
GRAPHICAL REPRESENTATION OF
COSTS

TOTAL FIXED COST

TOTAL VARIABLE
COST
GRAPHICAL REPRESENTATION OF
COSTS

VARIABLE COST
TOTAL MIXED PER UNIT
COST
GRAPHICAL REPRESENTATION OF
COSTS

FIXED COST PER MIXED COST PER


UNIT UNIT
5. HIGH-LOW METHOD
High-low method is a crude or simple technique of segregating mixed
costs. This method utilizes only two points, the highest and the kowest
points, in doing analysis making it a least accurate method.

High-low method is a statistical method which is based on the premise


that change in costs is attributed to change in variable costs while fixed
costs are being constant.
Steps in applying High-Low method

1. Identify the highest and lowest activity level and their


corresponding costs.

2. Calculate variable cost per unit or cost driver

3. Compute the total fixed cost

4. Formulate the cost equation that will be used in different level of


activities within relevant range.
6. LEAST SQUARES METHOD
Least squares method A.K.A Linear regression analysis, is a statistical
technique that may be used to estimate a linear cost function for a
mixed cost. This method is considered to be the most accurate since it
derives the fixed and variable cost by means of statistical analysis.

Linear regression is basically a mathematical analysis method which


considers the relationship between all the data points or data pairs in a
simulation. All these points are based upon two unknown variables-
one independent and one dependent.
FORMULA
CORRELATION ANALYSIS
CORRELATION ANALYSIS.
Correlation Analysis is a field of statistics that focuses on testing the
relationships between quantitative variables, the dependent and
independent variables.

Correlation measures the co-variation, strength of relationship and


direction of relationship between two variables. Correlations are useful
because if the relationship between variables can be identified,
predictions about future behavior can also be made.
Coefficient of Correlation (r )
This is a measure of the extent of linear relationship. It quantifies the
direction of the linear association between the two variables.

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