Exam 2: Cost Concepts, Behaviour and Estimation

Cost functions are most useful for estimating long term cost patterns.

A fixed cost function which changes at some point but remains constant after the change is called a:

Organisations need to understand how costs behave so they can predict the changes in costs that occur as a result of decisions made about production, sales and services.

Which of the following are forms of regression analysis?

When estimating future costs it is necessary to classify costs into fixed and variable components.

Average costs incorrectly treat fixed costs as variable.

When estimating future costs, information quality is higher when:

Simple regression estimates an equation that minimises the distance from each data point to:

Which graph shows data that are more suitable for regression analysis?

Most organisations ignore mixed costs because it is too difficult to predict their behaviour.

The incremental cost of an activity is known as the marginal cost.

Regression analysis overcomes the deficiency in two point methods by using all of the available data points.

The major disadvantage of the high-low method is that:

In regression analysis the estimated fixed cost is represented by the intercept coefficient.

Which of the following cost estimation techniques makes assumptions about the data being analysed? I Analysis at the account level II High low method III Regression analysis

Preparing a scatter plot is a requirement before applying the two-point method of cost estimation.

Scatter plots can be used for an initial evaluation of the data to determine whether the cost might be completely fixed, completely variable or mixed.

Rent on a building is usually a fixed cost.

When generating a list of possible cost drivers it is important that the change in cost driver could potentially affect the cost.

Distinguishing between fixed and variable costs is an important element of understanding cost behaviour.