Exam 4: Techniques for Estimating Fixed and Variable Costs

The major disadvantage of the account classification method is that it uses few observations of aggregate cost data to estimate total fixed and variable costs.

The contribution margin statement focuses attention on:

Relevant range is defined as:

Because account classification requires us to examine each account in detail, it often provides inaccurate estimates.

The regression analysis method of estimating fixed and variable costs uses all available observations to come up with a line that best "fits" the data.

Which of the following is not a technique used to construct contribution margin statements?

Using the high-low method, we know the true cost line.

For any volume of activity, total costs are:

Contribution margin denotes:

With advances in computer and information technologies, the account classification task may still be a daunting task.

The account classification is both time-consuming and subjective in nature.

An advantage of using the high-low method is that we can apply it if we know only total revenues, total costs, and activity volume.

An advantage of estimating variable costs by the account classification method is

The high-low method uses two observations of aggregate cost data to estimate total fixed costs and the unit variable cost.

The "segmented" contribution margin statement is one way firms modify the contribution margin statement to reflect GAAP.

Common fixed costs:

Regression analysis is:

Segment (product) margin is calculated by:

The contribution margin is well suited to evaluate short-term decision options.

We obtain the data for the account classification method from the contribution margin statement.