# How do you apply the account analysis?

Definition

Account analysis consists in classifying cost accounts in the ledger as variable, fixed, or mixed with respect to a cost driver. When costs in an account are mixed, analysts make an estimate about the percentage of these costs which is variable and the percentage which is fixed. The unit variable cost is then obtained by dividing the amount of costs identified as variable by the volume of cost driver. A natural extension of the account analysis consists in specifying for each account of the ledger the percentage of cost driven by each underlying cost driver.

$V_{c}^d = \frac{ \sum_{a=1}^{f} TC_{p}^a \times PV_a^d}{Q_p^d} \\ \quad \\ FC_p = \sum_{a=1}^{f} TC_{p}^d \times (1-PV_a)$

where $$V_c^d$$ is the unit variable cost associated with the cost driver $$d$$, $$TC_{p}^a$$ is the total cost in account $$a$$ in period $$p$$, $$PV_a^d$$ is the estimated percentage of costs in account $$a$$ which is proportional to the cost driver $$d$$, $$Q_p^d$$ is the volume of cost driver $$d$$ in period $$p$$, and $$FC_p$$ is the total fixed costs in period $$p$$.

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