ACCT 210 1st Edition Lecture 2Outline of Last Lecture I. Managerial accountingII. Four types of cost behaviora. Variableb. Fixedc. Step-variabled. MixedOutline of Current Lecture I. Review cost behaviorsII. Cost estimationIII. Contribution marginCurrent Lecture1. Review cost behaviora. Variable costs are incurred only if there is activityb. Fixed costs are incurred even with no activityc. Mixed cost: involves both variable and fixed costs0 1 2 3 4 50510152025303540Mixed CostsVariable costFixed cost# of unitsTotal Cost2. Cost estimationa. Scatter graph methodi. Find line of best fitii. y = mx + biii. b = y-intercept = fixed cost portioniv. y = total costv. m = variable cost per unitvi. x = number of unitsvii. b = total fixed costviii. mx = total variable costb. High-low methodi. Based on two points: Highest & lowest levels of activity and costs associated with itii. Using points, compute variable cost per unit (VCPU)iii.VCPU=Change∈total costChange∈activityc. Regressioni. Most accurate methodii. Not on exam3. Contribution Margina. Contribution margin = Sales revenue – total variable expensesb. Contribution margin format for income statements: Sales revenue – Variable expenses= Total contribution margin– Total fixed expenses = Net incomec. Example: convert following income statement to contribution formatSales revenueCost of goods soldGross marginSelling expensesAdministrative expensesOperating income$49,800 24,000$25,800 9,000 12,000 $4,800**NOTE: all of COGS are variable expenses; 20% of selling expenses are variable, 60% of admin expenses are variableANSWER ON NEXT PAGE…Sales revenueLess variable costs: Cost of goods sold Selling expenses Admin expenses Total variable costsContribution marginLess fixed costs: Selling expenses Admin expenses Total fixed expensesOperating income$24,000 1,800 (9,000 * 20%) 7,200 (12,000 * 60%) 7,200 (9,000 * 80%) 4,800 (12,000 * 40%)$49,800 33,000$16,800 (49,800-33,000) 12,000$ 4,800
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