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Basic Managerial Accounting Concepts

Basic Managerial Accounting Concepts. Cost Behavior: Fixed Costs Fixed vs. Variable Relevant range: normal production levels Behavior of fixed costs as production increases Implications for pricing of products?. Basic Managerial Accounting Concepts. Cost Behavior: Variable Costs

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Basic Managerial Accounting Concepts

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  1. Basic Managerial Accounting Concepts Cost Behavior: Fixed Costs • Fixed vs. Variable • Relevant range: normal production levels • Behavior of fixed costs as production increases • Implications for pricing of products?

  2. Basic Managerial Accounting Concepts Cost Behavior: Variable Costs • Vary directly with output • Linear relationship • Reasonable assumption? • Quantity discounts?

  3. Basic Managerial Accounting Concepts Cost Behavior: Step Costs • Step costs: fixed for small ranges of output • Adding sections of class • So overall variable, but not linear

  4. Basic Managerial Accounting Concepts Cost Formula: Total Costs = Fixed Costs + VCU x Units • Total Costs = Dependent variable • Fixed Costs = Intercept • Variable Costs = Slope; independent variable

  5. Basic Managerial Accounting Concepts Cost Behavior: Mixed Costs • Partially variable and partially fixed • Separating mixed costs into variable and fixed • High low method • Variable Cost Per Unit= (High Cost – Low Cost) / (High Output – Low Output) • Fixed Cost= Total Cost – (Output x Variable Cost) • Can use output/costs at high or low outputs

  6. Basic Managerial Accounting Concepts Cost Behavior: Mixed Costs • Separating mixed costs into variable and fixed • Least squares • Best fit line of observation points • Intercept: fixed costs • INTERCEPT FUNCTION • X Variable: variable costs per unit • SLOPE FUNCTION

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