AFM481 Chapter Notes - Chapter 10: Cost Driver, Time Horizon, Industrial Engineering

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OC2146671

23 May 2020

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM481

Professor

Grant Russell

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Document Summary

Cost function: mathematical description of how cost changes and with changes in the level of an activity relating to that cost. Labour costs are a poor predictor of material costs: material costs are driven by product mix, product designs, and manufacturing processes. Identify the problem and uncertainties: obtain information, make predictions about the future, make decisions by choosing among alternatives. Supplementing with conference method improves credibility: quantitative analysis, formal mathematical method to fit cost functions to past data observations, data are paired. Steps in estimating a cost function using quantitative analysis: choose the dependent variable, dependent variable: cost to be predicted and managed. Independent variable: factor used to predict the dependent variable (costs: collect data on the dependent variable and cost driver, time-series data: pertain to the same entity over successive past periods. Numerous observations for a company whose operations have not been affected by economic or technological change.

Related Questions

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

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

Question 22

A home goods store has a unit contribution margin of $30 and a contribution margin ratio of 60%. How much is the selling price of each unit?

	a. $50
	b. $48
	c. $42
	d. $18

Question 23

If the activity level increases 10%, what will happen to the total variable costs?

	a. Increase 10%
	b.Remain the same
	c. Increase by more than 10%
	d. Decrease by less than 10%

Question 24

Which term refers to the range over which a company expects to operate?

	a. Mixed range
	b. Fixed range
	c. Variable range
	d. Relevant range

Question 25

What is the name of the activity that causes changes in the behavior of costs?

	a. Index
	b. Multiplier
	c. Element
	d. Correlation

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AFM481 Chapter Notes - Chapter 10: Cost Driver, Time Horizon, Industrial Engineering

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