Visual fit method of cost estimation, Cost Accounting

Assignment Help:

Visual Fit Method of Cost Estimation

Cost estimation is based on past data regarding the dependent variable and the cost driver. The previous data on cost levels and the output levels is plotted on a graph named as a scatter graph and a line of best fit is drawn as displayed in the diagram. A line of best fit is a line drawn so like to cover the most points possible on a scatter graph. Its intersection along with the vertical axis shows the fixed cost while the gradient shows the variable cost per unit.

Example: 

Assume a firm has net costs of 8 meter, 4 meter and 1 meter respectively while the output units are as 400,000, 200,000 and respectively. So estimate its cost equation by utilizing   the visual fit method.

363_Visual Fit Method of Cost Estimation.png

Note : fixed cost = X0 = 1meter

            Gradient = Change in Y/ Change in X

                          = (Y3-Y2)/(X3-X2)

                          = Variable cost per unit

Variable cost per unit = Change in cost / Change in activity level

= (8 meter - 4 meter)/ (400,000 - 200,000)

= 20

Net cost equation y = 1 meter + 20 x

On the sources of the existing data, fixed cost is Shs 1 meter and the variable cost per unit is 20. On the sources of the developed model, estimates can be completed regarding future cost. When the activity level is 600,000 units, net cost will be estimated like:

TC = 1 Meter + 20 (600,000) = 1 Meter + 12 Meter = 13 Meter


Related Discussions:- Visual fit method of cost estimation

ASSIGNMENT ON HAMPSHIRE PROJECT, tHE FIRST SECTION ASSIGEMTN ANSWER FOR HAM...

tHE FIRST SECTION ASSIGEMTN ANSWER FOR HAMPSHIR COMPANY DECISIONS

What is the breakeven unit variable cost, Early customers at Graffiti Week ...

Early customers at Graffiti Week balk at the price for Moondoggie Reserve. The marketing department at DFW, Jolene, conducts some research that suggests Stanislaus county residents

Calculate the payout ratio, The following information is available for Whit...

The following information is available for Whitlock Corporation in millions average common stockholders equity 2014-$2,532 2013-$2,591 dividends declared for common stockholders 20

Profit and loss account, Both the parts, Profit and Loss Account and Tradin...

Both the parts, Profit and Loss Account and Trading Account of last account are interdependent upon each other. Gross Profit or loss plays a very important role in the calculation

Calculate monthly excess returns, In this exercise you will familiarize you...

In this exercise you will familiarize yourself with index models, beta and CAPM estimation. Download the spreadsheet data_question3.xlsx from Sakai and use the data contained there

Variance analysis, Variance Analysis This section describes how labour...

Variance Analysis This section describes how labour, material and overhead variances are calculated and what causes every of those variances. A chart is given also to describe

Budgetary planning and control - accounting techniques, Budgetary Planning ...

Budgetary Planning and Control - Accounting Techniques A budget is a   plan of action expressed in monetary terms. Therefore it is a quantified plan of what one intends to do.

Estimate finished goods cost of goods sold , ln an attempt to conceal a the...

ln an attempt to conceal a thefi of funds, Kaito Kid, controller of Shinichi Products, lnc. placed a bomb in the company s record vault. The ensuing explosion left only fragments o

Use the high-low method to determine variable cost per unit, The following ...

The following data is available regarding costs and units: Observation Machine-hours Total Operating Costs January 4,000 $45,900 February 5,000 52,500 March 3,400 44,025 April 4,40

Financial accounting, Financial Accounting It is the analysis, and rec...

Financial Accounting It is the analysis, and recording and classification of financial transactions and the ascertainment of how that information will be reported to the diffe

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd