Basics of Cost Behavior
A cost that does not change in total as output changes.
What is fixed a fixed cost?
Cost functions that may be discontinuous.
What are step costs?
Costs expensed in the period incurred, such as selling and administrative expenses.
What are period costs?
This “not bad” concept tells us how well the independent variable predicts the dependent variable in a regression model.
What is goodness of fit?
The NFL’s 2006 “discretion” to not use balls with the previous commissioner's signature is an example of this type of cost.
What are discretionary fixed costs?
These “quirky” pieces of data can skew the results of the high-low method when used to separate the fixed and variable components of a mixed cost.
What are outliers?
Look up if you want to see this cost, included in the absorption costing model but not a variable costing model.
What is Fixed Overhead?
The percentage of the total variability in a dependent variable that is explained by an independent variable. It assumes a value between 0 and 1.
What is the coefficient of determination (R2)?
Identifying and managing these factors “behind the wheel” of costs helps managers better predict and control said costs.
What are Cost Drivers?
This method of separating mixed costs into fixed and variable costs uses only 2 data points.
What is the high-low method?
The flaw in absorption costing is that some fixed overhead costs are deferred in this asset account.
What is inventory?
A feature not provided by either the scattergraph or high-low methods.
What is to assess the reliability of the estimated cost formula?
The range of output over which the assumed cost relationship is valid for the normal operations of a firm.
What is the relevant range?
In absence of regression software, these visual representations of data are used to separate fixed and variable components of mixed costs.
What are scattergraphs?
The two main regulatory bodies that do not accept variable costing as a product-costing method for external reporting.
What are the FASB and the IRS?
Using the regression program construct the cost formula for materials handling cost for Anderson Company if...
Coefficients
intercept : 749.89
X variable 1: 9.78
number of moves: 100
What is....
materials handling cost = $750 + ($10x100)
Southwest Airlines’ large fleet of “intact” 737s represent this type of cost.
What are fixed costs?
Three commonly used methods of separating a mixed cost into its fixed and variable components.
What are the high-low method, the scattergraph method, and the method of least squares?
The equation for the cost of goods sold under absorption costing.
What is absorption unit product cost x units sold?
The coefficient of determination when the independent variable explains ¾ of cost variability.
What is R^2= .75?