# BUACC2613, The Difference Between the High and Low Level of Costs

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Management Accounting (BUACC2613)

## BUACC2613, The Difference Between the High and Low Level of Costs

Management Accounting (BUACC2613)

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MANAGEMENT ACCOUNTING 1Management Account 1 AssignmentStudent’s NameName of University
MANAGEMENT ACCOUNTING 2Part AA1: Total Cost Function for Each CategoryThe supplies used by Loose Tooth Incorporation are mixed. This indicates that they have a fixed cost and a variable cost element. The high-low method is used to disaggregate the mixed costs into fixed cost and variable costs components (Weygandt, Kimmel, \$ Kieso, 2010). The difference between the high and low level of costs are considered variable costs given that only the variable cost element varies with the level of activity. Step 1: Computation of the Variable Cost Using High-Low MethodActivity LevelItemHighLow Change Total Costs \$ 175,099.00\$ 143,900.00\$ 31,199.00Number of Visits3,6002,3001,300Variable Costs Per Visit\$ 24.00Step 2: Computation of the Fixed and Variable Cost of Supplies XItem201420152016Total Costs \$ 143,900.00 \$ 163,600.00 \$ 175,099.00 Variable Costs \$ 55,198.23 \$ 71,997.69 \$ 86,397.23 Fixed Costs \$ 88,701.77 \$91,602.31 \$ 88,701.77 Ratio of Fixed Costs to Total Costs0.620.440.51Fixed Supplies Costs \$ 2,404.01 \$ 2,068.39 \$2,583.56 Variable Supplies Costs \$1,495.99 \$2,631.61 \$2,516.44 (i) Total Cost Function for Fixed CostsThe total cost will be fixed at \$ 110, 404.01, \$ 118,568.39, and 118, 382.56 during the respective years 2014, 2015, and 2016 regardless of the number of patient visits. The Fixed Cost function isY2014= \$ 110,404.01
MANAGEMENT ACCOUNTING 3Y2015= \$ 118,568.39Y2016=\$118, 82.56(ii) Total Cost Functions for Variable Costs. The variable cost is \$24 per units produced; thevariable costs depend on the number of patient visits (X). Therefore the Total Cost function using the variable costs isY = \$24XA2: Total Cost Function for Loose Tooth IncY2014= \$ 110,404.01 + \$24XY2015= \$ 118,568.39 + \$24XY2016=\$118, 82.56 +\$24XA3: Expected Profit in 2017The average cost per visit for the three year is \$ 60.46 as shown in the table below .Cost Per Visit 201420152016Average \$ 63.04 \$ 60.00 \$ 58.33 \$ 60.46 The average cost per visit is used to compute the total revenue Item2017Visits3800Fees \$ 229,743.96 Total revenue \$ 229,743.96 ExpensesPart-Time Dentist \$ 43,000.00 Receptionist/Technician \$ 80,000.23 Supplies \$ 5,100.00 Rent \$ 8,750.00 Administration \$ 40,200.00 Total Expenses \$ 175,099.00 Profit \$ 54,644.96
MANAGEMENT ACCOUNTING 4Part BB1: Revenue as the Cost Driver Regression StatisticsMultiple R0.95664R Square0.91517Adjusted R Square0.90668Standard Error54.829Observations12The computed R2 is 0.91517; the adjusted R2 is 0.90668 while the standard error is 54.829. This indicates that the equation has excellent goodness of fit.CoefficientsStandardErrort StatP-valueLower 95%Upper95%Lower95.0%Upper95.0%Intercept245.6287.712.800.0250.19441.0550.19441.05Revenue 0.040.0010.390.000.030.050.030.05The coefficient of intercept is 245.62, t stat is 2.8 and p-value is 0.02 indicating the coefficient is positive and statistically significant at the 5% confidence level. The coefficient for revenue is 0.04, t-value is 10.39 and p-value = 0.00 indicating that the relationship between revenue and cost is positive and statistically significant at the 5% confidence level.B1a: Analysis of Whether the Fixed Cost is Greater Than 0The cut-off t-value is 2.228, the t-value for the constant term a is 2.80. This is greater than the cut-off t-value. The t-value analysis indicates that in the relevant range, the fixed cost is significantly different from zero (Weygandt, Kimmel, \$ Kieso, 2010).

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