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Chapter 18: 13DQ (page 832)

How is a scatter diagram used to identify and measure the behavior of a company’s costs?

Short Answer

Expert verified

Answer

The behavior of cost under a scattered diagram is measured by plotting the volume of units and the cost incurred on the graph, and the slope of the line is measured by comparing the change in units and the change in cost.

Step by step solution

01

Definition of Cost Behavior

Cost behavior refers to the how the behavior of cost changes due to a change in the level of activity attained by the business entity.

02

Use of scatter diagram

The business entity plots the units produced and the cost incurred on the scatter graph. The horizontal axis represents the units produced, and the vertical axis represents the cost incurred. The different points are plotted according to the units and the cost. After plotting all the points estimated cost line, behavior is drawn based on the judgment that reflects the relation between the cost and unit volume.

The line slope is measured by dividing the change in cost by the change in units.

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Most popular questions from this chapter

Assume that a straight line on a CVP chart intersects the vertical axis at the level of fixed costs and has a positive slope that rises with each additional unit of volume by the amount of the variable costs per unit. What does this line represent?

Blanchard Company manufactures a single product that sells for \(180 per unit and whose total variable costs are \)135 per unit. The company’s annual fixed costs are $562,500. Prepare a CVP chart for the company.

_____ of _____ reflects expected sales in excess of the level of break-even sales.

Zhao Co. has fixed costs of \(354,000. Its single product sells for \)175 per unit, and variable costs are $116 per unit. If the company expects sales of 10,000 units, compute its margin of safety (a) in dollars and (b) as a percent of expected sales.

Labor costs of an auto repair mechanic are seldom based on actual hours worked. Instead, this labor cost is based on an industry average of time estimated to complete a repair job. This means a customer can pay, for example, $120 for two hours of work on a car when the actual time worked was only one hour. Many experienced mechanics can complete repair jobs faster than the industry average. Assume that you are asked to complete such a survey for a repair center. The survey calls for objective input, and many questions require detailed cost data and analysis. The mechanics and owners know you have the survey and encourage you to complete it in a way that increases the average billable hours for repair work.

Required

Write a one-page memorandum to the mechanics and owners that describes the direct labor analysis you will undertake in completing this survey.
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