chapter 5 cost functions

Question 1

do fixed cost per unit decrease when the level of activity — ?

Answer 1

increases

Question 2

variable costs per unit usually stay constant when the level of activitiy –?

Answer 2

varies

Question 3

convex costs : increase in a —– proportion compared to the increase in activitiy

Answer 3

higher

Question 4

concave: increase in a — proportion compared to the increas in activity

Answer 4

lower

Question 5

what is the proportional part in a cost function

Answer 5

the straight linear line increasing

Question 6

costs with upper limit describe

Answer 6

costs can only go so low or so high so y-axis is bounded somehow

Question 7

step fixed costs explain

Answer 7

step function increase , every 3000 new production hours we need 2 more men.

Question 8

s shaped costs explain

Answer 8

created by a mix of fixed and proportional costs

Question 9

explain concave part of s shaped function

Answer 9

low machine utilisation concave economies of scale

Question 10

explain convex part of s shaped function

Answer 10

high machine utilisation near capacity limit heavy wear so higher maintenance cost

Question 11

explain auxiliary and operating materials

Answer 11

auxiliary = paints, adhesives, artificial indirect costs

operating materials = oils, greases, indirect costs (they are materials to operate.
THEY ARE NOT ASSETS NECESSARY FOR OPERATIONS

they are like surgeons tools oils greases to make the machine work

Question 12

explain difference between single and multiple cost drivers

Answer 12

single would be machine tome is only cost driver, so cost of auxiliary and operating materials are based on machine times

multiple cost drivers several machines, so the machine operator costs is dependant on setup time and machine time (makes sense)

Question 13

how do short term fixed cost change in the long term?

Answer 13

short term fixed costs can be variable in the long run, and vary with one or more cost drivers , cost function differs with the time horizon

Question 14

whats the difference between learning and experience curve

Answer 14

learning: average working time decrease with number of products manufactured, concave cost function of wage, manual activities

experience : unit costs (not just labour unit costs ) decrease with output quantity, concave manufacturing cost function, consumption of auxiliary and operating materials decrease with number of repetitions, scrap is reduced, applied to automated activities

Question 15

3 things to do to simplify cost functions

Answer 15

aggregation (several costs), linearisation ( costs generally not linear ) homogenisation ( make cost functions more homogenous)

Question 16

where would the relevant range be in a s shape curve

Answer 16

where its linear

Question 17

some resources as data to find cost functions

Answer 17

bills of materials, work schedules, time and motion studies, empirical values, technical documentation, legal regulations

Question 18

explain cost use benefit consideration (precision vs needed info)

Answer 18

balance precision vs necessary information

Question 19

in account analysis method, costs are classified in two ways what are the two ways

Answer 19

proportional and fixed y= mx + b basically

and there is a column on the share of proportional costs

Question 20

high low method , considers only – past observations,

name the cost function slope b value

Answer 20

2 observations

difference between highest and lowest quantity of COST / different between higher and lowest quantity in h or quantity

delta cost / delta quantity

line between two poins in relevant range

find y = bx + a , find a by using highest values

Question 21

in linear regression it uses all observations, provides most objective, more precise, explain difference between linear regression and multiple regression analysis

Answer 21

linear regression : one dependant one independant

multiple regression : one dependant and many independant variables (repair cost depend on repair hours and repair orders)

least squares method is used

Question 22

you can also make a cost function for each overhead category, name some examples of overhead cost categories

Answer 22

operational costs

auxiliary, operating material and told costs

maintenance costs
imputed depreciation

imputed interest

taxes and insurance

Question 23

what is differentiated reporting?

Answer 23

shows fixed and variable costs for each cost category

Question 24

what can step by step plans show?

Answer 24

uses the budgeted csts for planned out 100% , but also makes variety 80%,90% to see each scenario panning out

Question 25

so once you have the budgeted costs based on cost functions what is this planned cost useful for

Answer 25

for future plans and if you make less output or more and then you can see your costs in the future

Question 26

how do you find out planned variable cost allocation rate

Answer 26

the total variable costs divided by planned capacity utilization (how many production hours are planned)

Question 27

how do you find out target cost allocation rate

Answer 27

that the total costs for 100% planned output (variable and fixed) divided by the planned capacity utilization production time