Cost

Question 1

Cost Object

Answer 1

a product

Question 2

Cost Driver

Answer 2

machine hour

Question 3

Cost Pool

Answer 3

WIP account

Question 4

Define

Relevant Cost

Answer 4

• future cost
• differ under alternatives

Question 5

Fixed Cost

Committed vs Discretionary

Answer 5

Committed
- long term
- cannot be eliminated (depreciation)

Discretionary
- periodic decision by management
- can be changed

Question 6

Step Cost

Step Variable vs Step Fixed (LF)

Answer 6

SV - small steps
SF - Large steps

Question 7

Relevant Range

Behavior of variable cost vs fixed cost

Answer 7

Variable Cost
- constant per unit
- directly with cost driver

Fixed Cost
- constant total
- inversely with cost driver

Question 8

Cost Function

Answer 8

TC = FC + VC
Y = a + bx

Question 9

Separation Techniques for Mixed Cost

High-Low Method

Answer 9

• Observe if cost relates to changes in cost driver
• Δ Cost / Δ Units

Question 10

Separation Techniques for Mixed Cost

Scattergraph Method

Answer 10

• Draw straight line in the middle of the points
• a = Point of origin
• b = Slope of 2 points

Question 11

Separation Techniques for Mixed Cost

Least Squares Method (Regression) SEXY shortcut

Answer 11

y = a + bx

(∑) ∑Y = na + b∑x (EYNABEX)

(x) ∑XY = a∑x + b∑x2

(E) Eliminate a or the fixed cost

(S) Substitute b to get variable cost

Question 12

Goodness of Fit

Correlation vs Coefficient of Determination

Answer 12

Correlation (r) - 0, -1, 1

Coefficient of Determination (r2) - strength of relationship

Question 13

Learning Curve Theory

Answer 13

• (↑) Large cost in earlier years because it is the start
• (↓) As time goes by, experience is LEARNED and cost decrease
• (↑) People will get tired, so move to new machines
• (↓) Technology is LEARNED and adapted so cost decrease
• Cycle continues

Question 14

Linear vs Multiple Regression

Answer 14

Multiple regression
- many independent variable