| 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.
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| Activity base | A measure of whatever causes the incurrence of a variable cost. For example, the total cost of X-ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is the activity base that explains the total cost of X-ray film.
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| Committed fixed costs | Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.
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| Contribution approach | An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated according to organizational functions.
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| Contribution margin | The amount remaining from sales revenues after all variable expenses have been deducted.
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| Cost structure | The relative proportion of fixed, variable, and mixed costs in an organization.
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| 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.
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| Discretionary fixed costs | Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
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| 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.
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| 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.
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| 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.
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| 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.
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| 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.
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| Mixed cost | A cost that contains both variable and fixed cost elements.
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| Multiple regression | An analytical method required when variations in a dependent variable are caused by more than one factor.
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| R 2 | 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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| Relevant range | The range of activity within which assumptions about variable and fixed cost behavior are reasonably valid.
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| Step-variable cost | The cost of a resource that is obtainable only in large chunks and that increases and decreases only in response to fairly wide changes in activity.
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