CHAPTER 3

Question 1

Cost behaviour

Answer 1

the relationship between a cost and the level of activity or cost driver.

Question 2

Cost Estimation

Answer 2

the process of determining the cost behaviour of a particular cost item.

Question 3

Cost predicition

Answer 3

using knowledge of cost behaviour to forecast the level of cost at a particular level of activity.

Question 4

Cost Drivers

Answer 4

any activity or factor that causes cost to be incurred.

Question 5

Volume-based cost driver

Answer 5

a cost driver that assumes that costs are driven, or caused, by the volume of production or sales.

Question 6

Non-volume-based cost driver

Answer 6

a cost driver that is not directly related to the production volume.

Question 7

Unit level costs

Answer 7

Costs relating to activities that are performed for each unit produced.

Question 8

Batch level costs

Answer 8

Costs relating to activities that are performed for a group of product units, such as a production batch or a delivery load.

Question 9

Product level costs

Answer 9

costs relating to activities that are performed for specific product or product families.

Question 10

Facility level costs

Answer 10

the costs incurred to support a business as a whole; not caused by any particular product.

Question 11

Variable cost

Answer 11

a cost that changes, in total, in direct proportion to a change in the level of activity.

Question 12

Linear cost function is expressed as:

Answer 12

Y = a + bX
Y = total cost 
a = fixed cost component (the intercept one the vertical axis)
b= variable cost per unit of activity (the slope of the line)
X = the level of activity

Question 13

Fixed Costs

Answer 13

a cost that remains unchanged in total despite changes in the level of activity.

Question 14

Step-fixed costs

Answer 14

a cost that remains fixed over a wide range of activity levels, but jumps to a different amount for levels outside that range.

Question 15

Semi-variable cost

Answer 15

a cost that consists of both fixed and variable components.

Question 16

Curvilinear cost

Answer 16

a cost that exhibits a cost behaviour that can be described by a curved line.

Question 17

engineered cost

Answer 17

a cost that bears a defined physical relationship to the level of output.

Question 18

Committed Cost

Answer 18

a cost resulting from an organisations basic structure and facilities and which is very difficult to change in the short term.

Question 19

Discretionary cost

Answer 19

a cost resulting from a management decision to spend a particular amount of money for some purpose, and where the decision can be changed easily.

Question 20

Managerial Judgment/ account classification method

Answer 20

the process in which managers use their judgment to classify costs as fixed, variable or semi variable costs.

Question 21

Engineering method

Answer 21

the study of the processes that result in the incurrence of a cost.

Question 22

Time and motion studies

Answer 22

observation and recording of the steps required and time taken by employees to perform particular activities in order to estimate a cost function.

Question 23

Quantitative Analysis

Answer 23

• scatter diagram with visual fit
• high-low method
• regression analysis