CHAPTER 3 Flashcards
Cost behaviour
the relationship between a cost and the level of activity or cost driver.
Cost Estimation
the process of determining the cost behaviour of a particular cost item.
Cost predicition
using knowledge of cost behaviour to forecast the level of cost at a particular level of activity.
Cost Drivers
any activity or factor that causes cost to be incurred.
Volume-based cost driver
a cost driver that assumes that costs are driven, or caused, by the volume of production or sales.
Non-volume-based cost driver
a cost driver that is not directly related to the production volume.
Unit level costs
Costs relating to activities that are performed for each unit produced.
Batch level costs
Costs relating to activities that are performed for a group of product units, such as a production batch or a delivery load.
Product level costs
costs relating to activities that are performed for specific product or product families.
Facility level costs
the costs incurred to support a business as a whole; not caused by any particular product.
Variable cost
a cost that changes, in total, in direct proportion to a change in the level of activity.
Linear cost function is expressed as:
Y = a + bX Y = total cost a = fixed cost component (the intercept one the vertical axis) b= variable cost per unit of activity (the slope of the line) X = the level of activity
Fixed Costs
a cost that remains unchanged in total despite changes in the level of activity.
Step-fixed costs
a cost that remains fixed over a wide range of activity levels, but jumps to a different amount for levels outside that range.
Semi-variable cost
a cost that consists of both fixed and variable components.
Curvilinear cost
a cost that exhibits a cost behaviour that can be described by a curved line.
engineered cost
a cost that bears a defined physical relationship to the level of output.
Committed Cost
a cost resulting from an organisations basic structure and facilities and which is very difficult to change in the short term.
Discretionary cost
a cost resulting from a management decision to spend a particular amount of money for some purpose, and where the decision can be changed easily.
Managerial Judgment/ account classification method
the process in which managers use their judgment to classify costs as fixed, variable or semi variable costs.
Engineering method
the study of the processes that result in the incurrence of a cost.
Time and motion studies
observation and recording of the steps required and time taken by employees to perform particular activities in order to estimate a cost function.
Quantitative Analysis
- scatter diagram with visual fit
- high-low method
- regression analysis
