Lecture 11

Question 1

cost function = ?

Answer 1

a mathematical function describing cost behaviour patterns

how cost change with changes in the cost driver

cost functions can be plotted with cost driver on x axis and corresponding amount of total costs on y axis

Question 2

total costs = ?

Answer 2

FC + VC

Question 3

cost estimation = ?

Answer 3

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

Question 4

the longer the time span…

Answer 4

the more likely that the cost will be variable

vary in alignment with a fluctuation in output

Question 5

various ways of a cause & effect relationship arising?

Answer 5

physical relationship between costs and cost driver

contractual arrangement

implicitly established by logic and knowledge of operations

Question 6

does correlation = causation?

Answer 6

not always

Question 7

four approaches to cost estimation?

Answer 7

industrial engineering method

conference method

account analysis method

quantitative analysis of current or past relationships

Question 8

conference method?

Answer 8

discussing cost estimation with relevant staff

Question 9

account analysis method?

Answer 9

classifies cost accounts in the ledger as variable, fixed or mixed with respect to the identified cost driver

Question 10

steps for quantitative analysis of cost relationships?

Answer 10

1) choose dependent variable

2) choose independent variable (cost driver)

3) collect data on the dependent variable and cost driver

4) plot the data

5) estimate the data

6) evaluate the estimated cost function

Question 11

what are the 3 types of linear costs?

Answer 11

variable, fixed, mixed

Question 12

two types of quantitative analysis of current/past relationships methods?

Answer 12

high-low method
regression analysis