AFM481 Chapter Notes - Chapter 10: Cost Driver, Cost Accounting, Fixed Cost
14 May 2019
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Analyze relationship b/w inputs & outputs physically: cons: takes a lot of cost and money, takes a long time, opinions gathered from departments (quick, perhaps not as accurate) Classify cost accounts as variable, fixed or mixed. Choose high & low observed values of cost driver: can be done by outsiders (nobody knows about the business, uses all observations of data. Cons: you can"t tell if it"s a true outlier or not, need some basic business knowledge to judge whether outliers are due to strike, electricity outage, or you may expect that to actually happen in the future. High low method: base x on inepdnent variable, because you can control that, cons, lowest and highest points could be outliers which will skew your line. Often called goodness of fit , its formal term is coefficient of determination: statistically, it is computed as: R2 = sum of squares explained variation by the regression line / sum of squares total variation.
