Management Acc Week 3

29 flashcards · Other · by Daniel F.

1. Cost estimation

   assessing the parameters of a linear cost function to predict total cost and its variations In product costing, they are used to compute predetermined overhead rates (i.e., allocation rates set in advance) in normal costing and standard costing, or in Activity-Based Costing1. In cost-volume-profit analysis, they reveal the cost structure of a company and allow an assessment of operating risks. In budgeting, they are used to forecast costs for different levels of activity and thus assess the amo…

2. Cost behavior

   description of how a cost changes in relationship to a measure of activity called cost driver Proportionality: to what extent is resource consumption determined by, and thus proportional to, the level of activity? Flexibility: how easily can the cost be adjusted during the period, i.e., can managers adapt it to the needs of the organization

3. Variable costs

   costs proportional to the level of activity. period p, cost driver d, produced amount Q, unit variable cost UC

4. linear variable cost

   cost per unit of cost driver is constant UC is constant e.g.: raw materials or sales commissions

5. concave variable cost

   cost per unit of cost driver decreases as the activity increases the more units you produce, the greater the efficiency in producing each unit UC has diminishing slope

6. convex variable cost

   cost per unit of cost driver increases as the activity increases when you start exceeding practical capacity, you incur congestion costs because equipment needs greater maintenance and may break more often UC has increasing scope

7. Step costs

   fixed over some range of activity and increase in a step-like fashion when a capacity limit is reached variable: fixed over a narrow range of activity (small steps, can be considered linear) fixed: fixed over a wide range of activity (large steps, cannot be considered linear)

8. Fixed costs

   costs which are not proportional to the volume of activity

9. Capacity fixed costs

   difficult tho change in the short term can be considered constant UC decreases as Q goes up capacity cost CC, capacity available CA, capacity price CP

10. Discretionary fixed costs

    costs which are not proportional to the volume of activity, but over which managers have discretion (i.e., they decide over them). not tied to a clear cause and effect relationship between inputs and outputs e.g. RnD, training Assumed constant by taking average

11. Mixed costs (semi-variable costs)

    costs that have both a variable and a fixed component. has to be segmented (defining a relevant range) and different cost functions have to be applied to each range

12. linear cost function

13. Components of unit variable cost

    resource quantity RU, resource price RP

14. components of fixed costs

    discretionary cost DC

15. linearity assumption

    the relationship between two variables can be approximated by a straight line characterized by a constant slope (UC) and intercept (FC).

16. Steps of cost estimation process

    Data collection and preparation Cost estimation Cost prediction, cost control, and model validation

17. Steps data collection and preparation

    specify costs, time windows, and periods should be relevant short periods can be more accurate, can have cut off errors the longer the window the more accurate it will be due to more data

18. identify a cost driver

    Unit-level activities - Where costs are proportional to the level of units Batch- level activities - Where the same amount of resources are consumed for every batch Product - level activities - Where the costs are proportional to the number of product lines Facility - level activities - Where the costs are proportional to the number of facilities

19. identify relevant range

    the range of activity over which the unit variable cost and the amount of fixed costs can be assumed constant

20. remove outliers

    Value Quartile 1 - (1.5 x Interquartile range)≺ Value Quartile 3 - (1.5 x Interquartile range)

21. Cost Estimation

    The engineering approach pick apart product and process The account analysis approach hire professional to do it The high-low approach regression between 2 points The regression approach full linear regression

22. Cost prediction

    plug in the quantity into the TC function

23. Cost control

    gives you a benchmark - point of reference from which comparisons can be made can make it easy to set a target - desired level of performance

24. Targets should ideally be S.M.A.R.T.

    Specific, Measurable, Ambitious yet Realistic and Time-bounded

25. Kaizen costing

    a costing system that focuses on reducing costs during the manufacturing stage of a product. concave variable costs

26. Target costing

    method of costs planning used during the research, development, and engineering stage to reduce manufacturing costs to targeted levels

27. Vc

    (ΔQ/ΔTC)

28. TC

    Q*VC + FC

29. P

    (ΔQ/ΔP)