BUS 371 CH 5A KEY TERMS

Question	Answer
Account analysis	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.
Dependent variable	A variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y = a + bX.
Engineering approach	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.
High-low method	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.
Independent variable	A variable that acts as a causal factor; activity is the independent variable, as represented by the letter X, in the equation Y = a + bX.
Least-squares regression method	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.
Linear cost behavior	Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity.
R2	A measure of goodness of fit in least-squares regression analysis. It is the percentage of the variation in the dependent variable that is explained by variation in the independent variable.

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	Created by Jamie Plym over 3 years ago