Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/39

Click to flip

39 Cards in this Set

  • Front
  • Back
What assumptions are usually made when estimating a cost function
* changes in the level of a single activity explain changes in total costs

* cost behavior can adequately be approximated by a linear function of the activity level within the relevant range
What is a linear cost function
Is a cost function wich, within the relevant range, the graph is a straight line
Three types of linear cost functions are
variable, fixed, and mixed
What are the different methods that can be used to estimate a cost function?
engineering method

conference method

account analysis method

quantitive analysis method
What methods does the quantative analysis method include
high-low

and

regression analysis
WHat are the six steps to estimate a cost function
choose the dependant variable

identify the cost driver

collect data on the dependent variable and the cost driver

plot the data

estimate the cost function

evaluate the cost driver of the estimeated cost function
how should a company estimate and choose cost drivers
economic plausibility

goodness of fit

significance of independent variable
what is a non linear cost function
Nonlinear costs are costs that are non linear within the relevant range that arise because of qty discounts, step cost functions, and learning curve effects
two types of learning curve models
cummulative average time model

incrimental unit time learning model
What are the common data problems a company must watch for when estimating costs?
missing data

extreme values of observations

changes in technology

inflation distortion
account analysis method
Approach to cost function estimation that classifies various cost accounts as variable, fixed, or mixed with respect to the identified level of activity. Typically qualitative rather than quantitative analysis is used when making these cost-classification decisions
coeffiecient of determination
Measues the percentage of variation in a dependent variable explained by one or more independent variables.
conference method
Approach to cost fucnction estimation on the basis of analysis and opinions about costs and their drivers gathered from various departments of a company(purchasing, process engineering, manufacturing, employee relations, etc.)
constant
The componenent of total cost that within the relevant range does not change with level of activity
cost function
Mathematical description of how a cost changes with changes in the level of an activity relating to that cost
cost prediction
forcasts about future costs
cumulative average time learning model
learning curve model in which the cumulative average time per unit declines by a constant percentage each time the cumulative qty of units produced doubles
dependent variable
the cost to be predicted
experience curve
function that measures the decline in cost per unit in various business functions of the value chain, such as manufacturing, marketing, distribution, and so on as the amount of these activities increases
high-low method
Method used to estimate a cost function that uses only the highest and lowest observed values of the cost driver within the relevant range and their respective costs
incremental unit-time learning model
learning curve model in which the incremental time needed to produce the last unit declines by aq constant % each time the cumulative qty of untis produced doubles
independent variable
level of activity or cost driver used to predict the dependent variable (costs) in a cost estimation or prediction model.
industrial engineering method
Approach to cost function estimation that analyzes the relationship between inputs and outputs in physical terms. Also called work measurement method
intercept
same as a constant
learning curve
function that measures hos labor-hours per unit decline as untis of production increase because workers are learning and becoming better at their jobs
linear cost function
cost function in which the graph of total costs versus the level of a single activity related to that cost is a straight line within the relevant range
mixed cost
a cost that has both fixed and variable elements
multi collinearity
exists when two or more independent variables in a mulitiple regression model are highly correlated with each other
multiple regression
regression model that estimates the relationship between the dependent variable and two or more independent variables
nonlinear cost function
cost function in which the graph of total costs based on the level of a single activity is not a straight line within the relevant range
regression analysis
statistical method that measures the average amount of change in the dependent variable associated with a unit change in one or m ore independent variables
residual term
the vertical difference or distance between actual cost and estimated cost for each observation in a regression model
semivariable cost
same as mixed cost
simple regression
regression model that estimates the relationship between the dependent variable and one independent variable
slope coefficient
coefficient term in a cost estimation model that indicates the aomunt by which total cost changes when a one-unit change occurs in the level of activity within the relevant range
specification analysis
testing of the assumptions of regression analysis
standard error of the estimated coefficient
regression statistic that indicates how much the estimated value of the coefficient is likely to be affected by random factors
step-cost function
a cost function in which the cost remains the same over various ranges of the level of activity, but the cost increases by discrete amounts (that is increases in steps) as the level of activity changes from one range to the next
work measurement method
see industrial engineering method.