chapter 9

Question 1

linear cost function

Answer 1

a cost function where, within the relevant range, the graph of total costs versus a single cost driver forms a straight line.

Question 2

relevant range

Answer 2

the range of the cost driver where the relationship between total costs and the driver is valid.

Question 3

slope coefficient

Answer 3

the amount by which total costs change for a unit change in the cost driver within the relevant range.

Question 4

constant/intercept

Answer 4

the component of total costs that, within the relevant range, does not vary with changes in the level of the cost driver.

Question 5

mixed cost/semi-variable cost

Answer 5

a cost that has both fixed and variable elements.

Question 6

cost estimation

Answer 6

the attempt to measure past cost relationships between total costs and the drivers of those costs.

Question 7

cost predictions

Answer 7

forecasts about future costs.

Question 8

cost function

Answer 8

a mathematical function describing cost behaviour patterns - how costs change with changes in the cost driver.

Question 9

industrial engineering method/work-measurement method

Answer 9

estimates cost functions by analysing the relationship between inputs and outputs in physical terms. it’s very time-consuming and often only used on direct-cost categories.

Question 10

conference method

Answer 10

estimates cost functions based on analysis and opinions about costs and their drivers gathered from various departments of an organisation. this method allows cost functions and estimates to be developed quickly.

Question 11

account analysis method

Answer 11

estimates cost functions by classifying cost accounts in the ledger as fixed, variable, or mixed with respect to the identified cost driver. typically, qualitative analysis is used to make these cost-classification decisions.

Question 12

non-linear cost function

Answer 12

a cost function where, within the relevant range, the graph of total costs versus the level of a single activity is not a straight line. step cost functions are examples of non-linear cost functions.

Question 13

step cost function

Answer 13

a cost function in which the cost is constant over various ranges of the cost driver, but the cost increases by discrete amounts (steps) as the cost driver moves from one range to the next.

Question 14

step variable-cost function

Answer 14

a step cost function in which cost is constant over narrow ranges of the cost driver in each relevant range.