ch10 - Chapter10:DeterminingHowCostsBehave:

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Chapter 10: Determining How Costs Behave: Linear cost function : a straight line within the relevant range  y = a + b x Where: y  = estimated total cost a  = constant (also called intercept), the component of total cost that does not vary with  changes in the level of an activity  = slope coefficient, the amount by which total cost changes when a one-unit change  occurs in the level of an activity = actual level of an activity within the relevant range.  Cost estimation  – measuring a relationship based on data from past costs and related  level of an activity  Cost predictions  – using past-cost behavior estimates to help predict future costs  Review of Cost Classification: 1. Choice of Cost Object: A particular cost item could be variable with respect to one  cost object and fixed with respect to another cost object. 2. Time Horizon: Variable and Fixed costs change relative to time. Longer the time =  more variable cost 3. Relevant Range: Managers should never forget that variable and fixed cost-behavior 
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ch10 - Chapter10:DeterminingHowCostsBehave:

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