Cost Acounting Presntation
Transcript of Cost Acounting Presntation
Presenters:
Chanda Ayub 002Zulqernain 003Kanwal Shaukat 004Zeeshan Raza 005Mubasher Javed 006Mohammed Imran 007
O W N E R S H I PDEBT CONTRACT AND ACCOUNTING
“O ye who believe! When ye deal with each other, in transactions involving future obligations in a fixed period of time, reduce them to
writing let a scribe write down faithfully as between the parties; let not the scribe refuse to write: as Allah has taught him, so let him write. Let him who incurs the liability dictate, but let him fear his Lord Allah, and not
diminish aught of what he owes. If the party liable is mentally deficient, or weak or unable himself to dictate, let his guardian dictate faithfully. And get two witnesses, out of your own men, and if there are not two men,
then a man and two women, such as ye choose, for witnesses, so that if one of them errs, the other can remind her. The witnesses should not refuse when they are called on (for evidence). Disdain not to reduce to
writing (your contract) for a future period, whether it be small or big: it is juster in the sight of Allah, more suitable as evidence, and more
convenient to prevent doubts among yourselves but if it be a transaction which ye carry out on the spot among yourselves there is no blame on
you if ye reduce it not to writing. But take witnesses whenever ye make a commercial contract; and let neither scribe nor witness suffer harm. If ye
do (such harm), it would be wickedness in you. So fear Allah; for it is Allah that teaches you. And Allah is well acquainted with all things”.
)Surah Al-Baqarah:282)
Presentation
Some Key Concepts
Cost BehaviorFixed CostVariable CostMixed cost
Number of Calls
Mo
nth
ly L
ine
ren
t o
f T
elep
ho
ne
Bill
Total Fixed Cost A fixed cost is a cost whose total amount remains
constant as the activity level changes. For Example monthly line rent of PTCL bill is fixed
and does not change when you make more local calls.
Number of Calls
Cal
l Ch
arg
es in
aT
elep
ho
ne
Bill
Total Variable CostA variable cost is a cost whose total amount
varies in direct proportion to changes in the activity level. For example total Call charges of PTCL bill is based on how many calls you
made.
Summary of Variable and Fixed Cost Behavior
Cost In Total Per Unit
Variable Total variable cost is Variable cost per unit remainsproportional to the activity the same over wide ranges
level within the relevant range. of activity.
Total fixed cost remains thesame even when the activity Fixed cost per unit goes
Fixed level changes within the down as activity level goes up. relevant range.
Variable vs. Fixed Cost
Mixed Costs
Part of a mixed cost changes with volume or usage
Part is fixed over a particular period
Contain both variable and fixed components
Fixed Cost
over a period
Variable
Cost per Unit
Number of units or Activity
To
tal
Co
st
X
Y
A mixed cost has both fixed and variablecomponents. Some portion of it is fixed and some is
variable.
A mixed cost has both fixed and variablecomponents. Some portion of it is fixed and some is
variable.
Mixed Costs
Total mixed cost
Mixed Costs
For planning and control purposes, mixed costs must be divided into their variable and fixed componentsThese components can then be grouped with
other variable and fixed costs for analysis
Mixed Costs
1. Engineering method
2. Scatter diagram method
3. High-low method
4. Statistical method
Multiple approaches are often used because the results yielded by these
methods are likely to differ.
Four methods are used to separate mixed costs into variable and fixed components
Identifies a linear relationship between activity level and cost by analyzing the
highest and lowest volumes in an accounting period and their related costs
Is a common, simple methodSomewhat crude since it uses only the
high and low data to predict cost behavior
High Low Method
The High-Low Method
1. Calculate the variable cost per unit or activity base
2. Calculate the total fixed costs3. Calculate the formula to estimate
the total costs within the relevant range
Three steps:
“Illustration”
Step 1
Calculate the variable cost per activity base Select the periods of highest and lowest
activity within the accounting period Find the difference between the highest and
lowest amounts for both machine hours and their related electricity costs.
Step 1: Calculate variable cost per machine hour
The High-LowMethod Illustrated (cont’d)
Hours Machinein Difference
Costin Difference Hour Machineper Cost Variable
Hours Machine 400
$1,100
(MH)Hour Machineper $2.75
The variable cost per machine hour will be used to calculate total fixed costs in Step 2 and total cost per month in Step 3.
The High-Low Method Illustrated
Step 2: Calculate the total fixed costs
Select the information from the month with either the highest or lowest volume
Costs Variable Total Costs Total Costs Fixed Total
The High-Low Method IllustratedDecember
Total Costs = $24,700 Total Variable Costs = 6,450 MH x $2.75 per MH
August Total Costs = $23,600 Total Variable Costs = 6,050 MH x $2.75 per MH
MH)per $2.75 (6,450 $24,700 Costs Fixed Total
MH)per $2.75 (6,050 $23,600 Costs Fixed Total
$6,962.50
$6,962.50
You can check your answer by recalculating total fixed costs using the month with the lowest activity.
The total fixed costs in Step 2 will be used to calculate total cost per month in Step 3.
The High-Low Method Illustrated
Step 3: Calculate the formula to estimate the total costs within the relevant range
Costs Variable Total Costs Fixed Total Month per Costs Total
Hour Machineper $2.75 $6,962.50 Month per Costs Total
From Step 2 From Step 1
x No. of units
The High Low Method Can be represented as Follows:
Y = a + b xY = Total costa = Fixed Costb = Variable costx = Number of units or activity
Quick Quizz
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
Quick Quizz
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit $4,000 ÷ 40,000 units = $0.10 per unit
Units Cost
High level 120,000 14,000$
Low level 80,000 10,000
Change 40,000 4,000$
Advantages of High Low Method
Useful For Estimating Total Cost.Very simple to apply.Provide precise Mathematical equation.Reflects greatest possible variation in the
activity.Can be applicable where cost and activity
shows linear relation.
Disadvantages of High Low method
Very Limited.Focus only on two points.Periods with high and low data tends to
be unusual.Less accurate as compared to other
methods
Evaluation
Though High Low Method is easy to use and very simple to apply but it has some limitations that restricts it to measure accurately. So, a manager who choose to use the high low method should do so with full awareness of its limitations.
True Or False
A company has increased its level of activity, its fixed cost per unit would increase. ( False)
Highly low method utilizes only two data points. (True)