chapter 5 cost functions Flashcards
do fixed cost per unit decrease when the level of activity — ?
increases
variable costs per unit usually stay constant when the level of activitiy –?
varies
convex costs : increase in a —– proportion compared to the increase in activitiy
higher
concave: increase in a — proportion compared to the increas in activity
lower
what is the proportional part in a cost function
the straight linear line increasing
costs with upper limit describe
costs can only go so low or so high so y-axis is bounded somehow
step fixed costs explain
step function increase , every 3000 new production hours we need 2 more men.
s shaped costs explain
created by a mix of fixed and proportional costs
explain concave part of s shaped function
low machine utilisation concave economies of scale
explain convex part of s shaped function
high machine utilisation near capacity limit heavy wear so higher maintenance cost
explain auxiliary and operating materials
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
explain difference between single and multiple cost drivers
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)
how do short term fixed cost change in the long term?
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
whats the difference between learning and experience curve
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
3 things to do to simplify cost functions
aggregation (several costs), linearisation ( costs generally not linear ) homogenisation ( make cost functions more homogenous)
where would the relevant range be in a s shape curve
where its linear
some resources as data to find cost functions
bills of materials, work schedules, time and motion studies, empirical values, technical documentation, legal regulations
explain cost use benefit consideration (precision vs needed info)
balance precision vs necessary information
in account analysis method, costs are classified in two ways what are the two ways
proportional and fixed y= mx + b basically
and there is a column on the share of proportional costs
high low method , considers only – past observations,
name the cost function slope b value
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
in linear regression it uses all observations, provides most objective, more precise, explain difference between linear regression and multiple regression analysis
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
you can also make a cost function for each overhead category, name some examples of overhead cost categories
operational costs
auxiliary, operating material and told costs
maintenance costs
imputed depreciation
imputed interest
taxes and insurance
what is differentiated reporting?
shows fixed and variable costs for each cost category
what can step by step plans show?
uses the budgeted csts for planned out 100% , but also makes variety 80%,90% to see each scenario panning out
so once you have the budgeted costs based on cost functions what is this planned cost useful for
for future plans and if you make less output or more and then you can see your costs in the future
how do you find out planned variable cost allocation rate
the total variable costs divided by planned capacity utilization (how many production hours are planned)
how do you find out target cost allocation rate
that the total costs for 100% planned output (variable and fixed) divided by the planned capacity utilization production time
