Ch 3

Question 1

cost behavior

Answer 1

the way in which a cost changes in relation to changes in activity usage

Question 2

Activity drivers explain changes in activity costs by measuring changes in activity output (usage). The two general categories of activity drivers are:

Answer 2

unit-level drivers and non-unit-level drivers

Question 3

unit-level drivers

Answer 3

explain changes in cost as units produced change

Question 4

Examples of unit-level drivers

Answer 4

pounds of direct materials, kw-hrs used to run machinery, direct labor hours

Question 5

non-unit-level drivers

Answer 5

explain how costs change as factors other than the number of units produced changes

Question 6

Examples of non-unit-level drivers

Answer 6

number of setups, work orders, engineering change orders, inspection hours, material moves

Question 7

fixed costs

Answer 7

costs that, in total, are constant within the relevant range as the level of the associated driver varies

Question 8

relevant range

Answer 8

the range over which the assumed cost relationship is valid for the normal operations of a firm

Question 9

variable costs

Answer 9

costs that, in total, vary in direct proportion to changes in an activity driver

Question 10

mixed costs

Answer 10

costs that have both a fixed and a variable component (such as salary plus commission)

Question 11

All costs are variable in the…

Answer 11

long run

Question 12

At least one cost is fixed in the…

Answer 12

short run

Question 13

activity capacity

Answer 13

is obtained when a firm acquires the resources needed to perform an activity

Question 14

practical capacity

Answer 14

the efficient level of activity performance

Question 15

unused capacity

Answer 15

the difference between acquired capacity and the actual amount of the activity used

Question 16

Resources can be categorized as…

Answer 16

flexible resources or committed resources

Question 17

flexible resources

Answer 17

are supplied as used and needed; quantity supplies equals quantity demanded

Question 18

committed resources

Answer 18

are supplied in advance of usage

Question 19

long run

Answer 19

period of time in which all costs are variable

Question 20

short run

Answer 20

period of time in which at least one cost is fixed

Question 21

account analysis method

Answer 21

a method used to estimate costs by classifying accounts in the general ledger as fixed, variable, or mixed

Question 22

coefficient of correlation (r)

Answer 22

the square root of the coefficient of determination (r^2), which is used to express not only the degree of correlation between two variables, but also the direction of the relationship

Question 23

coefficient of determination (r^2)

Answer 23

the percentage of total variability in a dependent variable that is explained by the an independent variable. (Value between 0 and 1)

Question 24

committed fixed expenses

Answer 24

costs incurred for the acquisition of long-term activity capacity, usually as the result of strategic planning

Question 25

confidence interval

Answer 25

prediction interval that provides a range of values for the actual cost with a prespecified degree of confidence

Question 26

cumulative average-time learning curve model

Answer 26

the model stating that the cumulative average time per unit decreases by a constant percentage, or learning rate, each time the cumulative quantity of units produced doubles

Question 27

dependent variable

Answer 27

a variable whose value depends on the value of another variable