Term
| Why do cost behaviors need to be estimated? |
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Definition
| Only variable costs are differential in the short run |
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Term
| What are 5 uses for cost estimation? |
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Definition
Decision making
Planning
Budgeting
Variance Analysis
Product costing/pricing |
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Term
| What are the four types of cost estimation? How do they work? |
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Definition
Account Analysis
Conference Method
Industrial Engineering Method
Quantitative Analysis Method |
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Term
| What does account analysis method do? |
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Definition
Estimates cost functions using the linear cost equation.
y = a + bX
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Term
| What does the conference method do? |
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Definition
| Estimates cost functions on feedback from personnel in departments of a company |
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Term
| What does the industrial engineering method do? |
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Definition
Estimates relationships between inputs and outputs in physical terms.
Ex: It takes one hour to produce 10 square yards of carpet |
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Term
| How does the quantitative analysis method work? |
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Definition
1) Choose a dependent variable.
2) Choose an independent variable (cost driver).
3) Collect & Plot the data.
4) Estimate a cost function.
5) Evaluate the cost driver of the estimated cost function. |
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Term
| What are the steps in the High-Low Cost method? |
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Definition
1) Solve for variable cost
2) Solve for fixed costs
3)Plus into cost formula |
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Term
| How do you solve for variable costs? |
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Definition
High cost - Low cost
High Activity - Low Activity |
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Term
| How do you solve for fixed costs? |
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Definition
Solve for F
Y = F + V(x)
Y - High cost
V - Variable cost just calculated
X - High quantity |
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Term
| How do you put it all together? |
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Definition
Total Cost = Fixed + Variable(# of units)
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Term
| How does r square interpret in regression analysis? |
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Definition
| % of costs that are explained by the moves |
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Term
| What are the dangers of unitizing fixed costs? |
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Definition
1) When fixed costs are divided by activity level, they appear to be variable
2) Should never be done for decision making purposes |
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