# Determining How Cost Behave (CH 10)

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### Account Analysis Method

approach to cost function estimation that classifies various cost accounts as variable, fixed, or mixed with respect to the identified level of activity; typically qualitative rather than quantitative analysis is used when making these cost-classification decisions

### Coefficient of Determination

measures the percentage of variation in a dependent variable explained by one or more independent variables

### Conference Method

approach to cost function estimation on the basis of analysis and opinions about costs and their drivers gathered from various departments of a company (purchasing, proces engineering, manufacturing, employee relations, and so on.

### Constant

the compnent of total cost that, within the relevant range, does not vary with changes in the level of the activity

### Cost Estimation

the attempt to measure a past relationship based on data from past costs and the related level of an activity

### Cost Function

mathematical description of how a cost changes in the level of an activity relating to that cost

### Cost Predictions

forecasts about future costs

### Cumulative Average-time Learning Model

learning curve model in which the cumulative average time per unit declines by a constant percentage each time the cumulative quantity of units produced doubles

### Dependent Variable

the cost to be predicted

### Experience Curve

function that measures the decline in cost per unit in various business functions of the value chain, such as manufacturing, marketing, distribution, and so on, as the amount of these activities increases

### High-Low Method

method used to estimate a cost function that uses only the highest and lowest observed values of the cost driver within the relevant range and their respective costs

### Incremental Unit-time Learning Model

learning curve model in which the incremental time needed to produce the last unit declines by a constant percentage each time the cumulative quantity of units produced doubles

### Independent Variable

level of activity or cost driver used to predict the dependent variable (costs) in a cost estimation or prediction model

### Industrial Engineering Method

approach to cost function estimation that analyzes the relationship between inputs and outputs in physical terms

### Intercept

another term for constant

### Learning Curve

function that measures how labor-hours per unit decline as units of production increase because workers are learning and becoming better at their jobs

### Linear Cost Function

cost function in which the graph of total costs versus the level of a single activity related to that cost is a straight line within the relevant range

### Mixed Cost

a cost that has both fixed and variable elements

### Multicollinearity

exists when two or more independent variables in a multiple regression model are highly correlated with each other

### Multiple Regression

regression model that estimates the relationship between the dependent variable and two or more independent variables

### Nonlinear Cost Function

cost function in which the graph of total costs based on the level of a single activity is not a straight line within the relevant range

### Regression Analysis

statistical method that measures the average amount of change in the dependent variable associated with a unit change in one or more independent variables

### Residual Term

the vertical difference or distance between actual cost and estimated cost for each observation in a regression model

### Semivariable Cost

another term for mixed cost

### Simple Regression

regression model that estimates the relationship between the dependent variable and one independent variable

### Slope Coefficient

coefficient term in a cost estimation model that indicates the amount by which total cost changes when a one-unit change occurs in the level of acitivity within the relevant range

### Specification Analysis

testing of the asumptions of regression analysis

### Standard Error of the Estimated Coefficient

regression statistic tht indicates how much the estimated value of the coefficient is likely to be affected by random factors

### Work-Measurement Method

another term for industrial engineering method

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