BU467 Lecture Notes - Lecture 7: Contribution Margin, Coefficient Of Determination, Statistical Significance
Document Summary
Y = dependent variable, the cost that is being predicted. B = the slope of the line, variable cost per unit. X = the independent variable, the cost driver. Industrial engineering method: estimates cost functions by analyzing the relationship between inputs and outputs in physical terms. Includes time-and-motion studies: very thorough and detailed, but also costly and time-consuming, also called the work-measurement method. Conference method: estimates cost functions on the basis of analysis and opinions about costs and their drivers gathered from various departments of a company, pools expert knowledge, reliance on opinions still makes this method subjective. Account analysis method: estimates cost functions by classifying various cost accounts as variable, fixed, or mixed with respect to the identified level of activity. Is reasonably accurate, cost-effective, and easy to use, but is subjective. Qualitative analysis: uses a formal mathematical method to fit cost functions to past data observations, advantage: results are objective.
