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BYU-I - ACCTG 180 - Accounting ACCTG 180 - Class Notes

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BYU-I - ACCTG 180 - Accounting ACCTG 180 - Class Notes

School: Brigham Young University - Idaho
Department: Accounting
Course: Survey of Accounting
Professor: Gary Ames
Term: Fall 2018
Tags: ACCTG180
Name: Accounting ACCTG 180
Description: This note cover the lessons, homework and the exams of week 11
Uploaded: 11/08/2018
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background image Cost Behavior, Operating Leverage, and Profitability 
Analysis
Knowing how costs behave relative to the level of business 
activity enables
managers to more effectively plan and control costs.
Cost behavior has two main types  Mixed costs (semi variable costs) include both fixed and 
variable components. For example, suppose Star
Productions, Inc., has to pay for janitorial services. 
The charge for these services includes a base fee of 
$1,000 plus
$20 per hour required to do a cleanup. The $1,000 base 
fee is fixed. It is the same no matter how many hours it 
takes to accomplish the cleanup. In contrast, the $20 
hourly cost is a variable cost because the total cost 
increases with each additional hour it takes to complete 
the cleanup. Since the total janitorial cost is composed of 
fixed and variable components, it is frequently called a 
mixed cost. It may also be called a semi variable cost.
Given the $1,000 base plus $20 per hour cost 
components, the total janitorial cost for any cleanup 
can be easily
Computed as shown below: Total cost = fixed cost + variable cost per unit * 
number of hours.
Cost Behavior Relative to Number of Concerts In this context, the total cost of hiring the band 
increases proportionately with the number of 
concerts while cost per
background image Concert remains constant. The band cost is therefore
variable. The same cost can behave as either a fixed 
cost or a
Variable cost, depending on the activity base. When 
identifying a cost as fixed or variable, first ask, fixed 
or
Variable relative to what activity base? The cost of 
the band is fixed relative to the number of tickets 
sold for a
Specific concert; it is variable relative to the number 
of concerts produced.
Example Is the compensation cost for managers of Pizza Hut 
Restaurants 
a fixed cost or a variable cost?
Answer The answer depends on the context. For example, 
since a store manager's salary remains unchanged
regardless of how many customers enter a particular 
restaurant, it can be classified as a fixed cost relative to the
number of customers at a particular restaurant. However, 
the more restaurants that Pizza Hut operates, the higher the 
total managers' compensation cost will be. Accordingly, 
managers' salary cost would be classified as a variable cost 
relative to the number of restaurants opened.
The formula for the contribution margin per unit method is 
(where N is the number of units at the break-even point):
N = Fixed costs ÷ Contribution margin per unit The 
income statement formula for the equation method produces
the same result as shown below (where N is the number of 
units at the break-even point): Sales − Variable costs − Fixed
costs = Profit Sales price per unit (N) − Variable cost per unit
(N) − Fixed costs = Profit Contribution margin per unit (N) − 
Fixed costs = Profit Contribution margin per unit (N) − Fixed 
costs = 0 Contribution margin per unit (N) = Fixed costs
N Fixed costs ÷ Contribution margin per unit
Example

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School: Brigham Young University - Idaho
Department: Accounting
Course: Survey of Accounting
Professor: Gary Ames
Term: Fall 2018
Tags: ACCTG180
Name: Accounting ACCTG 180
Description: This note cover the lessons, homework and the exams of week 11
Uploaded: 11/08/2018
5 Pages 71 Views 56 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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