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a method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves.
Account analysis
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a measure of whatever causes the incurrence of a variable cost. for example, the total cost of X-ray film in a hospital will increase as the number of X-rays taken increases. therefore, the number of X-rays is the activity base that explains the total cost of X-ray film.
Activity Base
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Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.
Committed fixed costs
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An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated according to organizational functions.
Contribution Approach
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The amount remaining from sales revenues after all variable expenses have been deducted
Contribution Margin
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The relative proportion of fixed, variable, and mixed costs in an organization.
Cost Structure
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A variable that responds to some casual factor; total cost is the ________, as represented by the letter Y, in the equation Y= a + bX.
Dependant Variable
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Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
Discretionary fixed cost
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A detailed analysis of cost behavior based on an industrial engineer's evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs.
Engineering Approach
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A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels
High-Low method
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A variable that acts as a casual factor; activity is the ______________, as represented by the letter X, in the equation Y = a + bX.
Independent Variable
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A method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors.
Least-squares regression method
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Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity.
Linear cost behavior
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A cost that contains both variable and fixed cost elements
Mixed Cost
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an analytical method required when variations in a dependent variable are cause by more than one factor.
Multiple regression
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A measure of goodness of fit in the least-squares regression analysis. it is the percentae of the variation in the dependent variable that is explained by variation in the independent variable.
R^2
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The range of activity within which assumptions about variable and fixed cost behavior are reasonable valid
Relevant range
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the cost of a resource that is obtained in large chunks and that increases and decreases only in response to fairly wide changes in activity.
Step-Variable cost
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