Term
Why do cost behaviors need to be estimated? 

Definition
Only variable costs are differential in the short run 


Term
What are 5 uses for cost estimation? 

Definition
Decision making
Planning
Budgeting
Variance Analysis
Product costing/pricing 


Term
What are the four types of cost estimation? How do they work? 

Definition
Account Analysis
Conference Method
Industrial Engineering Method
Quantitative Analysis Method 


Term
What does account analysis method do? 

Definition
Estimates cost functions using the linear cost equation.
y = a + bX



Term
What does the conference method do? 

Definition
Estimates cost functions on feedback from personnel in departments of a company 


Term
What does the industrial engineering method do? 

Definition
Estimates relationships between inputs and outputs in physical terms.
Ex: It takes one hour to produce 10 square yards of carpet 


Term
How does the quantitative analysis method work? 

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. 


Term
What are the steps in the HighLow Cost method? 

Definition
1) Solve for variable cost
2) Solve for fixed costs
3)Plus into cost formula 


Term
How do you solve for variable costs? 

Definition
High cost  Low cost
High Activity  Low Activity 


Term
How do you solve for fixed costs? 

Definition
Solve for F
Y = F + V(x)
Y  High cost
V  Variable cost just calculated
X  High quantity 


Term
How do you put it all together? 

Definition
Total Cost = Fixed + Variable(# of units)



Term
How does r square interpret in regression analysis? 

Definition
% of costs that are explained by the moves 


Term
What are the dangers of unitizing fixed costs? 

Definition
1) When fixed costs are divided by activity level, they appear to be variable
2) Should never be done for decision making purposes 

