ADM 3346 Lecture 2: Chapter 10

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greenscorpion188

7 Feb 2017

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A cost function is a mathematical representation of how a cost changes with changes in the level of an activity relating to that cost. Variations in the level of a single activity (the cost driver) explain the variations in the related total costs. Cost behavior is approximated by a linear cost function within the relevant range. Graphically, the total cost vs. the level of a single activity related to that cost is a straight line within the relevant range. Cause and effect as it relates to cost drivers. The most important issue in estimating a cost function is determining whether a cause-and- effect relationship exists between the level of an activity and the costs related to the level of activity. A physical relationship between the level of activity and costs. Note: a high correlation (connection) between activities and costs does not necessarily mean causality. Uses time and motion studies which can be time consuming and costly: conference method.

Related Questions

Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less attention on areas operating as anticipated.

true false

A cost function is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost.

true false

When choosing among cost drivers, managers trade off level of detail, accuracy, feasibility, and costs of estimating functions.

true false

Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How would total costs of personnel be classified?

Variable Cost Fixed Cost Mixed Cost Sunk Cost

Why is it important to identify the most appropriate costdrivers for a particular product?

A) so managers can identify the activities necessary tomanufacture a product

B) so managers can control product costs better

C) so managers can predict product costs better and make betterdecisions

D) B and C

Answer:

Cost drivers are ________.

A) the different functions in the value chain

B) different types of functional areas in the firm

C) measures of activities that require the use of resources andthereby cause costs

D) different types of cost calculations

Answer:

Within the relevant range, the total amount of ________ costchanges in direct proportion to changes in the cost driver. Withinthe relevant range, the total amount of ________ cost does notchange in direct proportion to changes in the cost driver.

A) fixed; variable

B) variable; fixed

C) step; mixed

D) mixed; step

Answer:

What happens when the cost-driver level increases within therelevant range?

A) Total fixed costs remain unchanged.

B) Fixed costs per unit of cost driver increase.

C) Total variable costs decrease.

D) Variable costs per unit of cost driver increase.

Answer:

Which of the following costs is a fixed cost?

A) cost of dairy ingredients used to produce ice cream

B) depreciation expense on factory building

C) fuel used by delivery trucks

D) labor wages of workers who mix dairy ingredients to make icecream

goldalligator726

Select the assumptions underlying CVP analysis. Choose the four assumptions underlying CVP analysis

1. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units sold.

2. Total costs can be separated into a fixed component that does not vary with the units sold and a component that is variable with respect to the units sold.

3. Fixed costs only include the direct fixed costs and do not include indirect fixed costs of a product (or service).

4. When represented graphically, the behavior of total revenues and total costs are linear (represented as a straight line) in relation to units sold within a relevant range and time period.

5. The number of units sold is one of many cost drivers.

6. The selling price, variable cost per unit, and fixed costs are known and constant.

rubyhound554

ADM 3346 Lecture 2: Chapter 10

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