Cost Accounting Ch 10

Front 1

What assumptions are usually made when estimating a cost function

Back 1

* 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

Front 2

What is a linear cost function

Back 2

Is a cost function wich, within the relevant range, the graph is a straight line

Front 3

Three types of linear cost functions are

Back 3

variable, fixed, and mixed

Front 4

What are the different methods that can be used to estimate a cost function?

Back 4

engineering method

conference method

account analysis method

quantitive analysis method

Front 5

What methods does the quantative analysis method include

Back 5

high-low

and

regression analysis

Front 6

WHat are the six steps to estimate a cost function

Back 6

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

Front 7

how should a company estimate and choose cost drivers

Back 7

economic plausibility

goodness of fit

significance of independent variable

Front 8

what is a non linear cost function

Back 8

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

Front 9

two types of learning curve models

Back 9

cummulative average time model

incrimental unit time learning model

Front 10

What are the common data problems a company must watch for when estimating costs?

Back 10

missing data

extreme values of observations

changes in technology

inflation distortion

Front 11

account analysis method

Back 11

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

Front 12

coeffiecient of determination

Back 12

Measues the percentage of variation in a dependent variable explained by one or more independent variables.

Front 13

conference method

Back 13

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.)

Front 14

constant

Back 14

The componenent of total cost that within the relevant range does not change with level of activity

Front 15

cost function

Back 15

Mathematical description of how a cost changes with changes in the level of an activity relating to that cost

Front 16

cost prediction

Back 16

forcasts about future costs

Front 17

cumulative average time learning model

Back 17

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

Front 18

dependent variable

Back 18

the cost to be predicted

Front 19

experience curve

Back 19

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

Front 20

high-low method

Back 20

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

Front 21

incremental unit-time learning model

Back 21

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

Front 22

independent variable

Back 22

level of activity or cost driver used to predict the dependent variable (costs) in a cost estimation or prediction model.

Front 23

industrial engineering method

Back 23

Approach to cost function estimation that analyzes the relationship between inputs and outputs in physical terms. Also called work measurement method

Front 24

intercept

Back 24

same as a constant

Front 25

learning curve

Back 25

function that measures hos labor-hours per unit decline as untis of production increase because workers are learning and becoming better at their jobs

Front 26

linear cost function

Back 26

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

Front 27

mixed cost

Back 27

a cost that has both fixed and variable elements

Front 28

multi collinearity

Back 28

exists when two or more independent variables in a mulitiple regression model are highly correlated with each other

Front 29

multiple regression

Back 29

regression model that estimates the relationship between the dependent variable and two or more independent variables

Front 30

nonlinear cost function

Back 30

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

Front 31

regression analysis

Back 31

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

Front 32

residual term

Back 32

the vertical difference or distance between actual cost and estimated cost for each observation in a regression model

Front 33

semivariable cost

Back 33

same as mixed cost

Front 34

simple regression

Back 34

regression model that estimates the relationship between the dependent variable and one independent variable

Front 35

slope coefficient

Back 35

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

Front 36

specification analysis

Back 36

testing of the assumptions of regression analysis

Front 37

standard error of the estimated coefficient

Back 37

regression statistic that indicates how much the estimated value of the coefficient is likely to be affected by random factors

Front 38

step-cost function

Back 38

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

Front 39

work measurement method

Back 39

see industrial engineering method.