Cost Accounting – 12^th Edition

Ch 10 Terms

Account analysis method – approach to cost estimation that classifies cost accounts in the subsidiary ledger 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 variable

Conference method – approach to cost estimation that develops cost estimates on the basis of analysis and opinions about costs and their drivers gathered from various departments of a company (purchasing, process engineering, manufacturing, employee relations, and so on)

Constant – the component of total cost that, within the relevant range, does not vary with changes in the level of the activity. Also called intercept

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 with changes in the level of an activity relating to the 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 value-chain functions such as manufacturing, marketing, distribution, and so on, as units produced increase

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 unit 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 estimation that analyzes the relationship between inputs and outputs in physical terms. Also called work measurement method

Intercept – see 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. Also called a semi variable cost

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 the actual cost and the estimated cost for each observation in a regression model

Semi variable cost – see 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 activity within the relevant range

Specification analysis – testing of the assumptions of regression analysis

Standard error of the estimated coefficient – regression statistic that indicates how much the estimated value of the coefficient is likely to be affected by random factors

Step cost function – a cost function in which the cost remains the same over various ranges of the level of activity, but the cost increases by discrete amounts (that is, increases in steps) as the level of activity changes from one range to the next

Work-measurement method – see industrial-engineering method