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### 39 Cards in this Set

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 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.