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WSU ACCTG 231 - Least-Squares Regression Method

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PSYCH 105 Lecture 4Ch. 1 Managerial Accounting and Cost ConceptsOutline of Current Lecture I. Least-Squares Regression MethodII. The Traditional and Contribution FormatsIII. Assigning Costs to Cost ObjectsIV. Cost Classification for Decision MakingV. Differential Cost and Differential RevenueVI. Opportunity CostVII. Sunk CostsVIII. Summary of the Types of Cost ClassificationsCurrent LectureI. Least-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- The goal of this method is to fit a straight line to the data that minimizes the sum of the squared errors- Cost analysis objective can be calculated using Y=a+bX- Least-square regression also provides a statistic, called the R2, which is a measureof the goodness of fit of the regression line to the data pointsII. The Traditional and Contribution Formats- Uses of the Contribution Formato The contribution income statement format is used as an internal planning and decision-making tool. Use approach for: Cost-volume-profit analysis Budgeting Special decisions such as pricing and make-or-buy analysisIII. Assigning Costs to Cost Objects- Direct costso Costs that can be easily and conveniently traced to a unit of product or other cost objectThese 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. Ex: direct material and direct labor- Indirect costso Costs that cannot be easily and conveniently traced to a unit of product or other cost object Ex: manufacturing overheadIV. Cost Classification 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- All other costs and benefits can and should be ignored as irrelevantV. Differential Cost and Differential Revenue- Costs and revenues that differ among alternativeso Ex: You have a job paying$1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month Differential revenue is: $2,000-$1,500=$500 Differential cost is: $300VI. Opportunity Cost- 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 $15,000VII. Sunk Costs- Sunk costs have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisionsVIII. Summary of the Types of Cost Classifications- Financial Reporting- Predicting Cost Behavior- Assigning Costs to Cost Objects- Making Business


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WSU ACCTG 231 - Least-Squares Regression Method

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