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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773
BuyFind

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773

Solutions

Chapter
Section
Chapter 3, Problem 1DQ
Textbook Problem

Why is knowledge of cost behavior important for managerial decision making? Give an example to illustrate your answer.

Expert Solution
To determine

Explain the importance of cost behavior for managerial decision making with an example.

Explanation of Solution

Cost Behavior:

Cost behavior determines the effect of changes in organizational activities on the cost associated with them. In other words, cost behavior is determined by the manager to analyze the changes in cost due to changes in output level within the organization.

Analyzing cost behavior is important for managerial decision making purpose due to following reasons:

  • Managers would be able to reduce total cost incurred on activities.
  • Cost behavior helps manager make decisions to increase profitability.
  • Cost is compared with the predetermined standards to check the cost efficiency in the organization. Controlling measures could be taken by the managers if any deviation is found.
  • Cost behavior helps the manager to attain economies of scale by increasing the production volume.

There are various cost associated within the organizational operations such as advertising cost, production cost, material cost and labor cost. Cost can be classified into variable and fixed costs.

For instance, if raw material cost is reduced in the market then manager can purchase it now for future use depending on the nature of raw material. This will reduce its cost of production and increases its profitability. At the same time, inventory storage and maintenance cost will be increased. The decisions related with cost can be taken by the manager after analyzing the cost behavior.

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Chapter 3 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making
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Ch. 3 - Describe how the scattergraph method breaks out...Ch. 3 - What are the advantages of the scattergraph method...Ch. 3 - Describe the method of least squares. Why is this...Ch. 3 - What is meant by the best-fitting line?Ch. 3 - What is the difference between the unit cost of a...Ch. 3 - If a company produces 10,000 units and sells 8,000...Ch. 3 - (Appendix 3A) Explain the meaning of the...Ch. 3 - A factor that causes or leads to a change in a...Ch. 3 - Which of the following would probably be a...Ch. 3 - Which of the following would probably be a fixed...Ch. 3 - In the cost formula, the term 128,000,000 a. is...Ch. 3 - In the cost formula, the term 12,000 a. is the...Ch. 3 - In the cost formula, the term Number of Patient...Ch. 3 - In the cost formula, the term Total Cost a. is the...Ch. 3 - The following cost formula for total purchasing...Ch. 3 - An advantage of the high-low method is that it a....Ch. 3 - Select the independent and dependent variables.Ch. 3 - Select the correct set of high and low months.Ch. 3 - An advantage of the scattergraph method is that it...Ch. 3 - The total cost for monthly supervisory cost in a...Ch. 3 - Yates Company shows the following unit costs for...Ch. 3 - (Appendix 3A) In the method of least squares, the...Ch. 3 - Creating and Using a Cost Formula Big Thumbs...Ch. 3 - Using High-Low to Calculate Fixed Cost, Calculate...Ch. 3 - Using High-Low to Calculate Predicted Total...Ch. 3 - Using High-Low to Calculate Predicted Total...Ch. 3 - Using Regression to Calculate Fixed Cost,...Ch. 3 - Inventory Valuation under Absorption Costing Refer...Ch. 3 - Inventory Valuation under Variable Costing Refer...Ch. 3 - Absorption-Costing Income Statement Refer to the...Ch. 3 - Variable-Costing Income Statement Refer to the...Ch. 3 - Creating and Using a Cost Formula Kleenaire Motors...Ch. 3 - Using High-Low to Calculate Fixed Cost, Calculate...Ch. 3 - Using High-Low to Calculate Predicted Total...Ch. 3 - Brief Exercise 3-28 Using High-Low to Calculate...Ch. 3 - Using Regression to Calculate Fixed Cost,...Ch. 3 - Inventory Valuation under Absorption Costing Refer...Ch. 3 - Inventory Valuation under Variable Costing Refer...Ch. 3 - Brief Exercise 3-32 Absorption-Costing Income...Ch. 3 - Brief Exercise 3-33 Variable-Costing Income...Ch. 3 - Variable and Fixed Costs What follows are a number...Ch. 3 - Cost Behavior, Classification Smith Concrete...Ch. 3 - Classifying Costs as Fixed and Variable in a...Ch. 3 - Use the following information for Exercises 3-37...Ch. 3 - Use the following information for Exercises 3-37...Ch. 3 - Step Costs, Relevant Range Bellati Inc. produces...Ch. 3 - Matching Cost Behavior Descriptions to Cost...Ch. 3 - Examine the graphs in Exercise 3-40. Required: As...Ch. 3 - Use the following information for Exercises 3-42...Ch. 3 - Use the following information for Exercises 3-42...Ch. 3 - High-Low Method Refer to the information for Luisa...Ch. 3 - Scattergraph Method Refer to the information for...Ch. 3 - Method of Least Squares Refer to the information...Ch. 3 - Use the following information for Exercises 3-47...Ch. 3 - Use the following information for Exercises 3-47...Ch. 3 - Method of Least Squares, Developing and Using the...Ch. 3 - The method of least squares was used to develop a...Ch. 3 - Identifying the Parts of the Cost Formula;...Ch. 3 - Inventory Valuation under Absorption Costing...Ch. 3 - Inventory Valuation under Variable Costing Lane...Ch. 3 - Income Statements under Absorption and Variable...Ch. 3 - (Appendix 3A) Method of Least Squares Using...Ch. 3 - (Appendix 3A) Method of Least Squares Using...Ch. 3 - Identifying Fixed, Variable, Mixed, and Step Costs...Ch. 3 - Identifying Use of the High-Low, Scattergraph, and...Ch. 3 - Identifying Variable Costs, Committed Fixed Costs,...Ch. 3 - Scattergraph, High-Low Method, and Predicting Cost...Ch. 3 - Method of Least Squares, Predicting Cost for...Ch. 3 - Cost Behavior, High-Low Method, Pricing Decision...Ch. 3 - Jana Morgan is about to sign up for cellular...Ch. 3 - Variable and Fixed Costs, Cost Formula, High-Low...Ch. 3 - Cost Separation About 8 years ago, Kicker faced...Ch. 3 - Variable-Costing and Absorption-Costing Income...Ch. 3 - Refer to the information for Farnsworth Company...Ch. 3 - (Appendix 3A) Scattergraph, High-Low Method,...Ch. 3 - (Appendix 3A) Separating Fixed and Variable Costs,...Ch. 3 - (Appendix 3A) Cost Formulas, Single and Multiple...Ch. 3 - Suspicious Acquisition of Data, Ethical Issues...

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