10.1   Use standard mathematical notation to specify a cost function that can be graphed as a straight line.

 

1) There is a homogeneous relationship between the individual cost items in the dependent variable pool and the cost driver when each activity whose costs are included in the dependent variable has the same cost driver.

 

2) A single cost pool that includes many different costs is a heterogeneous cost pool.

 

3) A nonlinear cost function adequately describes the changes in the levels of the cost driver due to changes in the behaviour of various costs.

 

4) A linear cost function is a function in which the graph of total costs versus a single cost driver forms a straight line, within the relevant range.

 

5) When estimating cost functions, it is assumed that variations in total cost of a cost object cannot be explained by variations in a single cost driver.

 

6) A mixed cost has a fixed element.

7) A cost-benefit relationship, relative to cost drivers and resulting costs, may develop because of physical relationships, contractual relationships, or implicit relationships.

 

8) The selection of the best measure of benefit will depend upon the corresponding change in the cost pool.

 

9) There is poor correlation if the predicted values do not match actual cost observation.

 

10) Correctly identifying the cost driver and separating fixed from variable costs are important inputs for many management decisions.

 

 

 



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