ACCTG 231 – 1st Edition Lecture 3 Outline of Last Lecture I. Manufacturing CostsII. Non-Manufacturing CostsIII. Cost ClassificationsOutline of Current Lecture I. Least-Squares Regression MethodII. Assigning CostsIII. Cost ClassificationsCurrent LectureLeast-Squares Regression Method:- A method used to analyze mixed costs if a scattergraph plot reveals an approximately linear relationship between the X and Y variables.- This method uses all of the data points to estimate the fixed and variable cost components of a mixed cost.o Compared to the High-Low method, this method provides the most accurate estimate because it uses all the data points.- The goal of this method is to fit a straight line to data that minimizes the sum of the squared errors.The Traditional and Contribution Formats:- The contribution income statement format is used in managerial accounting as an internal planning and decision-making tool.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Assigning Costs to Cost Objects:- Direct Costs:o Costs that can be easily and conveniently traced to a unit of product or other costobjects.o EX: direct materials and direct labor.- Indirect Costs:o Costs that cannot be easily and conveniently traced to a unit of product or other cost object.o EX: manufacturing overhead.Cost Classifications for Decision Making:- Every decision involves a choice between at least two alternatives. Only those costs and benefits that differ between alternatives are relevant in a decision.- Differential Cost and Differential Revenue:o Costs and revenues that differ among alternatives.o EX: You have a job paying $1500 per month in Pullman. You have a job offer in Lewiston that pays $2000 per month. The commuting cost to the city is $300 per month. Differential Revenue: $2000 - $1500 = $500 Differential Cost: $300- Opportunity Cost:o The potential benefit that is given up when one alternative is selected over another.o EX: If you were not attending college, you could be earning $15,000 per year. Your opportunity cost of attending college for one year is $15,000.- Sunk Costs:o Sunk costs have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions.o EX: Suppose you had purchased gold for $400 an ounce, but now it is selling for $250 an ounce. Should you wait for the gold to reach $400 an ounce before selling it? You may say, “Yes,” even though the $400 purchase is a sunk cost.o EX: Suppose that your car could be sold now for $5,000. Is this a sunk cost? NO, it is not a sunk