Module 2 - Determining how costs behave Flashcards
What two types of costs make up mixed costs?
- Fixed costs
2. Variable costs
What are some examples of variable costs?
Direct materials Direct labour supplies and power commissions shipping costs
What is an activity base?
The measure of whatever causes the incurrence of a variable cost.
What are some common activity bases?
direct labour hours
machine hours
units produced
unites sold
What are some examples of fixed costs?
Depreciation insurance property taxes rent advertising salaries
Define mixed costs?
A mixed cost contains both variable and fixed cost elements. Mixed costs are also known as semivariable costs.
What methods are used to analyse mixed costs?
account analysis the engineering approach scatter graph plot high low method least squares regression
How does account analysis work?
it is classified into fixed or variable depending on how costs have behaved previously and it based on the analysts prior knowledge.
What is the engineering approach?
a detailed analysis of what cost behavior should be, based on an industrial engineer’s evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, and so on
Define High low method?
It uses the difference between the highest and lowest activity levels to determine the variable cost per unit.
What is the least squares regression method?
The least-squares regression method, unlike the high-low method, uses all of the data to separate a mixed cost into its fixed and variable components.
Define independent variable?
A variable (often denoted by X) whose variation does not depend on that of another.
Define dependent variable?
A variable (often denoted by Y) whose value depends on that of another.
