Cost prediction involves forecasting future cost levels based on historical cost behavior using various statistical techniques, such as linear regression, to inform budgeting, decision-making, and strategic planning.
A curvilinear cost function represents any cost relationship where the cost does not change proportionally with the level of activity. This type of cost function forms a curved line when plotted on a graph.
A technique used for predicting cost behavior by analyzing the highest and lowest activity levels in a dataset to create a cost function. Though simple, it lacks mathematical rigor and precision.
The least squares method, also known as least squares regression, is a statistical technique used for estimating cost behavior by plotting observed cost levels against various activity levels and calculating the best fit line.
A linear cost function captures cost behavior that, when plotted on a graph against activity levels, results in a straight line. This function simplifies the relationship between costs and activity levels, essential for cost estimation and budgeting in business.
An analytical method used to quantify the relationship between two or more variables by fitting a linear equation to observed data. This method is commonly employed in finance, economics, and various scientific fields to identify trends and make predictions.
A Profit-Volume (PV) Chart, also known as a Profit-Volume graph, visually represents the relationship between a company's profits and its sales volume. It provides valuable insights into the break-even point, the margin of safety, and the dynamics between fixed and variable costs, aiding in decision-making and strategic planning.
The relevant range is the range of activity levels within which valid conclusions about cost behaviors and break-even points can be drawn from linear cost functions. Outside this range, the assumptions of linear relationships between costs and revenue may not hold true.
A scatter diagram, or scatter plot, is a graphical representation used to display observations of data points plotted on the x-axis and y-axis to visualize any potential relationship or correlation between two variables. It is often employed in various fields, including accounting, statistics, and data analysis.
Semi-variable costs, also known as mixed costs, are costs that contain both fixed and variable components. They change in response to changes in volume but by less than a proportionate amount.
A step-function cost refers to an item of expenditure where costs increase in a step-like pattern with rising activity levels. Unlike linear cost functions, step-function costs do not change continuously but incrementally at certain thresholds of activity.
A stepped cost, also known as a semi-fixed cost, is an expense that remains fixed over a certain level of activity or production but changes by a fixed amount when the activity level significantly increases or decreases beyond specific thresholds.
