BOLIVARIAN REPUBLIC OF VENEZUELA

MINISTRY OF PEOPLE'S POWER FOR UNIVERSITARY EDUCATION

NATIONAL EXPERIMENTAL UNIVERSITY OF THE LLANOS

RÓMULO GALLEGOS CENTERS

AREA OF ECONOMIC AND SOCIAL SCIENCES

PATTERNS OF
BEHAVIOR
OF THE COSTS
Professor: High school diploma
Wilmer War López H. Jeankelly C.I 14.452.240
Torres Wilmary C.I: 27.664.027
Valera Carlos
Yánez Jesús C.I: 23,853,263

San Juan de los Morros, February 25, 2020

INTRODUCTION
 Cost accounting continues to grow in importance as
management tool to increase business profits. With the use
from the high-speed electronic equipment, its importance will be even more evident
due to the enormous amount of accounting and statistical data that
can be made available at a minimal cost, but also, that information is
will achieve in a much shorter period, thus increasing its usefulness for the
management.

Due to the fact that the economy in these times is very changeable through the
supply and demand is important to know in the labor field of our
profession the behavior of these very varied or very changing changes
about what is being sold and to know if what is being produced is leaving
benefits for the company and in the event that what is being produced is
leaving losses to identify and correct the problem.

We must also be able to identify behavior patterns of

the costs because these will quickly tell us through graphs how it is
the situation regarding the production of a product and whether it should be reorganized
said production due to technological advancements that could improve or
deteriorate the production or provision of a service.

DEVELOPMENT
 COST BEHAVIOR PATTERNS

Knowing the behavior of costs is very useful in management.

from a company for a variety of purposes. For example, to know how to
behave the costs, allows managers or administrators to predict the
utilities when the volume of sales and production changes. To know the
cost behavior is also useful for estimating costs. In turn, the
estimated costs affect different management decisions such as
to say whether the exceeded machinery capacity should be used for production and
sell a product at a reduced price.

The behavior of a cost refers to the way in which a cost

changes at the moment when a related activity changes. To understand the
cost behavior, the following two factors must be
considered: First, the activities that are thought to cause must be identified.
that the cost is incurred. Such activities are called activity bases (or
activity drivers). Second, the range of activity must be specified
about which changes in cost are of interest. To this range of activity
it is called relevant range.

VARIABLE COSTS

It is the cost that a company or organization has that changes.

according to the sales volumes or the level of activity of the company. The cost
the variable increases when production increases and decreases when it does
decreases.

Example: a logistics company expands its fleet of trucks, it will need more
fuel to provide its service.

The greater the volume of production, the greater and more diverse
they will be the variable costs. The proper management that a company has regarding
the variable cost will make that organization more or less competitive
regarding its competitors. Over time, variable costs can
stabilize and be controlled. The variable cost is graphed with a line in
ascending direction (the greater the production, the higher the total variable cost).

Examples of variable cost

Direct raw material.

2. Direct inputs.
3. General materials.
4. Commissions on sales.
5. Packaging and containers.

6. Specific taxes.
7. Combustible and energy resources.
8. Distribution costs.
9. External suppliers.

FIXED COST
 It is the cost that an organization or company has that does not vary, since
the company cannot do without this type of expenses that are indispensable
for the activity that the organization carries out.

Example: The rental cost of a premises, office, or warehouse of a company.

Fixed costs usually occur over a certain period of time.

time does not depend on the level of production; with greater or lesser production, the

The total fixed cost of a company remains stable.

These costs are usually paid monthly and may be modified with the
time according to the needs and the situation of the company. Fixed costs vary
according to the number of employees, the type of company or based on the goods or
provided services.

The fixed cost is usually graphed as a horizontal line, since it does not exist
variability in it. A company will always try to minimize costs.
indispensable for your growth.

Within fixed costs, there are two categories:

Discretionary Fixed Costs: These are those that are susceptible to being
modified, such as salaries and wages.

Committed Fixed Costs: These are the ones that do not accept changes, for which
which are also called sunk costs. In this last category would fall the
depreciation of machinery and long-term leasing contracts.

Examples of fixed costs

Property taxes.
2. Public services (electricity, gas, water).
3. Rental of properties (offices, warehouses).
4. Insurance.
5. Office supplies.
6. Internet service.
7. Indirect labor.
8. Security personnel.
9. Administrative expenses.
10. Transport.
11. Taxes (licenses, municipal fees).

Formation of the Total Cost

Semi-variable costs
 Also known as "semi-fixed" or mixed, these costs have the purpose of
characteristic that is made up of a fixed part and a variable part.

The typical example is public services such as electricity and telephone, which
They charge a fixed fee for the service plus a variable cost based on usage of the service.

RELEVANT RANGE

Express the minimum and maximum volume values that it can produce.
company without having to modify its fixed and variable cost structure. In
effect, the relevant range is the short-term capacity of the organization. In
At this level, no losses or gains are recorded. It is described as that interval.
of activity within which total fixed costs and unit variable costs
remain constant.

Example of Relevant Range

Assume that the total fixed cost of renting a warehouse is US$ annually if the
production is between 5 and 14.99 units. If production is expected to be
less than 5 units, a smaller warehouse can be rented for US$
annual. Consequently, there are two relevant ranges in this situation;
relevant range "A", which comprises from 0 to 4.99 production units and the
relevant range 'B', which covers from 5 to 14.99 units of production.

NON-LINEAR RELATIONSHIP

A non-linear relationship between two variables exists when the

Increases/decreases between them do not occur with the same intensity.

There are certain variables that, due to their nature, establish relationships.
that are not linear. Contrary to linear relationships, when there is a
nonlinear relationship causes a curve pattern in the data. In the field of physics and
In mathematics, it is quite common to find linear relationships.

When non-linear relationships occur between variables, the modernization of the

functions become more complex, as it is not easy to estimate a function that
correctly capture the curvature between the variables.

Examples of Non-Linear Relationship

Differentiating between the various types of nonlinear relationships is something

complex. Therefore, our objective in this article is to understand how it
it involves a non-linear relationship. We could say that non-linear relationships
They are all those that do not have a constant slope.

In other words, all relationships that do not grow/shrink at all.

Rats at the same pace or flat ones are nonlinear relationships. Intuitively, everything
What cannot be drawn with a straight line is non-linear.

The above are just a few very simple examples. Obviously, there is
a practically infinite universe of non-linear relationships.

Difference Between Non-Linear Relationship And Linear Relationship

 The difference between linear and nonlinear relationships has been mentioned before.
A linear relationship can always be represented by a straight line. This
A straight line can be increasing, decreasing, or flat. When something cannot be
if it cannot be represented by a straight line, then it is a non-linear relationship.
We will then have to draw it with curves.

Total Cost and Unit Cost

The total cost is made up of the total accumulated costs by a

cost object.

The unit cost is the result of dividing the total cost by the number of
units that make up the cost object. These units can be
expressed in various forms; for example, in finished products, hours
worked, products shipped, services provided, among others.

It is important to note that the unit cost should be used with caution.
The unit cost calculated at a certain level of activity cannot be generalized for
be used at any other level of activity, due to the costs of a
Cost objects usually include variable costs and fixed costs.

Example:

First Part: Let's assume that the total cost to manufacture 5,000 units of a
The product is S/ 100,000. Based on this information, what is the cost?
unit cost of the product? The unit cost is S/ 20 per product calculated from the
next way:

CU = Total Cost = S/ 100,000 = S/ 20

Unidades producidas 5,000

Second Part: Based on the previous information, what would be the total cost?
budgeted for a volume of 8,000 units of the product?

At first glance, we might think that the total cost would be

S/. 160,000

Calculated as follows:

Total Cost = 8,000 x S/ 20 = S/ 160,000

However, the total cost will be influenced by the behavior of the

costs related to the product, as shown in the third part.
Third Part: Let's assume that the total cost of S/ 100,000 to manufacture the
5,000 units of the product were obtained considering that the variable cost per
The product is S/ 8 and the total fixed cost is S/ 60,000.

Based on the previous information, the total cost for the volume of 5,000
Product units were calculated as follows: Variable costs
= 5,000 x S/ 8 = S/ 40,000

Costos Fijos = 60,000

100,000

Knowing the above information, what would the total cost be?
budgeted for a volume of 8,000 units of product? The total cost
it would be calculated in the following way:

Variable costs = 8,000 x S/.8 = S/. 64,000

Costos fijos= 60,000

Costo Total= 124,000

As we can see, the total budgeted cost for 8,000

products should be S/ 124,000 instead of S/ 160,000 (how would it be calculated)
erroneously using the unit cost as an absolute value without considering the
behavior of costs.

This difference can have a significant impact on decisions made by one

company, such as in the determination of cost-based pricing.

The correct unit cost is S/15.50 (S/124,000/8,000) for a volume

of 8,000 products and not of S/ 20 that corresponds to a volume of 5,000
products. It is different to calculate a price based on a cost of S/ 15.50 than in
one of S/ 20.
Cost Estimation

It is a forecast of the most probable outcome of the cost of a project, the

which should include some indication of the accuracy (i.e., +/- x percent).
Usually used with a qualifier (preliminary, conceptual, etc.). Some areas
of application have a specific qualifier that implies a range of precision
(order of magnitude estimate, budget estimate, etc.).

These values allow management to make the right decision,

according to the type of estimate being used.

Cost Estimation in Projects

Use of estimates: Cost estimates are used for

different types of managerial decisions, among them are:

A) technical-economic studies.

B) Analysis of alternatives.

C) Approval of budgets.

D) granting of contracts.
 E) approval of changes in scopes.

F) Impacts from changes in contracts.

Procedure for Preparing Cost Estimates

Understand the purpose of the estimate.

Understand the scope of the project and its battery limits.
Execution strategies.
Use of the edt / account code.
Obtaining a list of long lead time equipment/items
adults.
Determination of metric calculations.
Develop cost estimates.
Submit final report.

ESTIMATION METHODS

Preliminary methods

Cost capacity curves.

Factoring

Law of size and power

Detailed methods

Man hours

Unit price analysis.

Cost Capacity Curves

This method is based on considering that the cost of capital per unit of
production remains constant.

The method is applied graphically, using a curve that represents various

plants or units of various capacities and their respective cost. the curve
allows projecting the cost of an installation with a given capacity

The method requires considerable historical information.

Curves can be generated at various levels, i.e., plants, equipment

older.

Cost Capacity Curves

The curve predicts the standard cost for the design, date, and location of
emission of the curve.
Adjustments are required regarding the current design, time, and location.
Quick response.
Does it include all cost components or just direct costs?
Its accuracy is low, used for estimates class V or IV
It cannot be used for atypical installations.
Factorization

This method is based on the different factors or components of

investment costs maintain a constant share, for different
sizes of a plant, equipment, work or job.
When it comes to plants or units, the basis for calculation is the equipment.
greater. The rest of the cost elements are calculated as a percentage of
cost of the equipment.
Requires specific and considerable historical information.
There are tables with factors for different types of equipment: ovens,
boilers, pumps, compressors, tanks, containers, etc.
The cost of an installed equipment is given by the following equation:
CIT = CEQ (1 + FCD + FCI)
Where:
CIT = cost of the installed equipment
cost of the equipment
FCD = direct cost factor
FCI = indirect cost factor.
 The direct cost factor is further subdivided into material factor and
direct labor factor.
An example of this type of information is indicated in the attached table.

Factorization

Law of Size and Power

This method is based on the participation of cost factors in

in relation to capacity, they maintain a non-linear and decreasing relationship,
due to economies of scale.
The cost of a team of size b can be estimated based on the
cost of a size a equipment, using the equation:

CB = CA * (XB/XA)ª, where:

CB = Cost of equipment size B

CA = Cost of equipment size A

XA=Cost parameter of equipment A

XB=Cost parameter of equipment B

a = Exponent that depends on the type of equipment

Law of Size and Power

It is also known as the 0.6 rule method, as the factor

tends to be frequently a value close to this number.
The method provides better values when the XB/XA ratio is lower.
A 4.
The obtained cost is located in the same period as the reference cost.
Therefore, in general, an adjustment for time must be made.
Used to estimate equipment costs only, does not consider costs
of installation.
Requires great experience for its application. Its misuse can
lead to larger errors.

Methods to Segment Semivariable Costs

These methods apply to semi-variable items; that is, those

that remained after classifying the purely fixed or variable items in the
what himselfrequires separate the portion fixed y variable
= + ∗
methods: Direct estimation. High point - low point. Through diagrams of
dispersion. Statistical methods (Regression) And Monetary units X Level of
Activity.
 Direct Estimation Methods

Based on times and movements: When there are no historical data. When the
the company presents a new situation. It is done through observations, to
detect the emergence of new items. Based on the analysis of the
management of historical data. From the analysis of historical costs. Of the
interpretation of administrative policies from professional experience.

High Point–Low Point Method

It supports the estimate on a fixed base and another variable considering the levels.
more highs y more low of the activity
cost. = + = + = + Model assumptions: It is considered that the
the highest and lowest points of cost are the most representative for explanation
such behavior. There is a linear relationship between variable costs and the
generators that drive them. There are no seasonal factors affecting
positively or negatively the linear behavior of costs.

Example: Applying the high point-low point method, we want to know the
behavior of the energy commodity at different levels: = = −
( − ) = , , − , , ( , − , ) = . / .

− = ( − ) − = ( − ) − , , = ( − , )
Find the equation of the line − = ( − ) − = (
− ) − , , = ( − , ) = + , , = + , , .
 Method Through Scatter Plot

Complement the previous method, only that it takes two representative points.
that simulate a correct relationship between the cost and the activity that originates or denotes.

the consumption. EXAMPLE: Points with costs of 1,500,000 are selected and
1,200,000 = , , − , , ( , − , ) = L 2.00 /
h − , , = ( − , ) = + , ,

Statistical method / regression analysis

Regression analysis is a statistical tool used to measure

the relationship between a variable and one or more independent variables. Variable
dependent Y independent variable X dependent variable Y variable

Production Cost Accounts

1.(1405)Raw Materials
2.(1410) Products in Process
3.(1415) Ongoing Construction Works
4.(1417) Urban Planning Works
5. (1420) Contracts in execution
6.(1425) Developing crops
7.(1428) Agricultural Plantations
8. (1430) Finished Products
9. (1435) Goods Not Manufactured by the Company
10.(1440) Real Estate for Sale
11. (1445) Livestock
12.(1450)Land
13. (1455) Materials, Spare Parts and Accessories
14.(1460) Packaging and Containers
15.(1465) Inventories in Transit
16.(1499) Provisions
 CONCLUSION

After completing this work, we can conclude that in order to have

Better cost control in any industrial company is beneficial.
having a standard cost system since it will allow us not only to determine
an upfront cost of production, but the cost that must really be
to maintain during the production process and thereby analyze the deviations that
they could have arisen in the period to avoid them in the next.

We must not forget that the implementation of this system is very costly
due to the need to be done with great caution, ensuring that it does not
exclude no important aspect that should be considered in the determination of
cost per unit. Therefore, and according to the capacity that it has
The company must be very careful when deciding to implement this type of system;
On the contrary, it would be advisable to establish the estimated cost system.
 BIBLIOGRAPHY

Source: Cost and Management Accounting,

Sergey Udolkin

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unit 3 patterns of
behavior of costs