Business 203 Ch 3
Terms
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- cost prediction
- The application of cost measures to expected future activity levels to forecast future costs
- account analysis
- Selecting a plausible cost driver and classifying each account as a variable cost or as a fixed cost
- visual-fit method
- A method in which the cost analyst visually fits a straight line through a plot of all the available data
- engineering analysis
- The systematic review of materials, supplies, labor, support services, and facilities needed for products and services; measuring cost behavior according to what costs should be, not by what costs have been.
- high-low method
- A simple method for measuring a linear-cost function from past cost data, focusing on the highest-activity and lowest-activity points and fitting a line through these two points
- least-squares regression (regression analysis)
- Measuring a cost function objectively by using statistics to fit a cost function to all the data
- coefficient of determination (R²)
- A measurement of how much of the fluctuation of a cost is explained by changes in the cost driver
- Measurement of cost behavior
- Understanding and quantifying how activities of an organization affect levels of costs
- linear-cost behavior
- Activity that can be graphed with a straight line because costs are assumed to be either fixed or variable
- step costs
- Costs that change abruptly at intervals of activity because the resources and their costs come in indivisible chunks
- mixed costs
- Costs that contain elements of both fixed- and variable-cost behavior
- capacity costs
- The fixed costs of being able to achieve a desired level of production or to provide a desired level of service while maintaining product or service attributes, such as quality
- committed fixed costs
- Costs arising from the possession of facilities, equipment, and a basic organization: large, indivisible chunks of cost that the organization is obligated to incur or usually would not consider avoiding.
- discretionary fixed costs
- Costs determined by management as part of the periodic planning process in order to meet the organizationÂ’s goals. They have no obvious relationship with levels of capacity or output activity.
- cost measurement
- Estimating or predicting costs as a function of appropriate cost drivers
- cost function
- An algebraic equation used by managers to describe the relationship between a cost and itÂ’s cost driver (s).
- activity analysis
- The process of identifying appropriate cost drivers and their effects on the costs of making a product or providing a service