chapter3- faculty personal web page（chapter3- faculty personal web page）.doc

Chapter 5 Cost Behavior: Analysis and Use Learning Objectives LO1. Understand how fixed and variable costs behave and how to use them to predict costs. LO2. Use a scattergraph plot to diagnose cost behavior. LO3. Analyze a mixed cost using the high-low method. LO4. Prepare an income statement using the contribution format. LO5. (Appendix 5A) Analyze a mixed cost using the least-squares regression method. New in this Edition ? Many new In Business boxes have been added. ? The end-of-chapter materials have been expanded by adding several new shorter exercises. Chapter Overview A. Types of Cost Behavior Patterns. (Exercises 5-1, 5-6, 5-7, 5-8, 5-11, and 5-12.) At least three cost behavior patterns—variable, fixed, and mixed—are found in most organizations. Of course, many other types of cost behavior patterns exist, but these three patterns are fairly common and the mixed cost model can be used to provide approximations to more complex cost behavior patterns within a relevant range. It is important for managers to understand the behavior of each type of cost. 1. Variable Costs. The total amount of a variable cost varies in direct proportion to changes in the activity level. When expressed on a per unit basis, variable costs are constant. Examples of costs that are normally variable with respect to output volume are listed in Exhibit 5-2. Be careful to point out to students that some of these costs may be fixed in some organizations. This is particularly true of direct labor and other employee wages and salaries that may be effectively fixed due to labor laws in a country, custom, labor contracts, or the organization’s personnel policies. Exhibit 5-8 in the text points out that in practice there is a wide variation in how some of these costs are classified by individual companies. a. Activity base (cost driver). For a cost to be variable, it must be variable with respect to some activity base. An activity base is a measure of whatever caus