Costing and Decision Making
Dependent variable
Cost to be predicted and managed in cost estimation
Absorption costing
Costing method where fixed manufacturing overhead is treated as a period cost
Variable costing
Costing method where lease charges on factory building are inventoriable cost
Sunk costs
Costs that are always irrelevant when making decisions
Make-or-buy decisions
Decisions about whether to insource or outsource the production of goods or services
Independent variable
Factor used to predict the dependent variable in cost estimation
Qualitative factors
Factors that need to be considered when selecting among alternatives
Graphical display of a cost function
Graphical representation of a cost function where the steepness of a line represents the total amount of fixed costs
Income under absorption costing
Income calculated using absorption costing method
Income under variable costing
Income calculated using variable costing method
Absorption-costing income statements
Income statements that do not differentiate between variable and fixed costs
Cost function
Mathematical description of how a cost changes with changes in the level of an activity
Simple regression analysis
Method that estimates the relationship between the dependent variable and one independent variable
Quantitative analysis methods of cost estimation
Methods such as high-low method and regression analysis used for cost estimation
Quantitative factors
Outcomes that are measured in numerical terms
Relevant revenues
Revenues that remain the same for two alternatives being examined