Overall Theme We will explore fundamental assumptions of cost functions and discuss the relationships between cost behaviour, cost estimation and cost prediction. The concept of cost driver analysis and its application to cost estimation and cost management will also be discussed. We will also describe how to estimate cost behaviour using managerial judgment, engineering methods and other quantitative techniques.
Desired Learning Outcomes and Essential Reading
Langfield-Smith, K., H. Thorne, and R. W. Hilton (2012). Management Accounting 6e: Information for Managing and Creating Value, 6th ed, McGraw-Hill Australia Pty Ltd. (Hereafter referred to as LS) • Chapter 2 • Chapter 3 (include Appendix 3 portion on “Evaluating the regression equation” p. 108109)
TOPIC 3 COST BASICS After completing this topic, you should be able to: 1. 2. 3. 4. 5. 6. 7. 8. Why are costs important? What does ‘different costs for different purposes’ mean? Understand and apply various classifications of costs. Understand cost drivers and the role of cost driver analysis. Describe and apply the activity hierarchy of costs and cost drivers. Explain the relationships between cost estimation, cost behaviour and cost prediction. Understand and apply various methods for cost estimation. Understand some practical issues faced in estimating cost functions.
Tutorial Questions (must be prepared prior to the tutorial) Question 1: Langfield-Smith, Chapter 3, Case 3.41 Parts Q3-8 only Please note that all numbers in the cost functions should be rounded off to 2 dec places. Excel regression outputs are as follows: Part 1: If only patient load is considered as a determinant of administration costs, a simple regression can be used, utilising Excel. The output is reproduced below. Regression Statistics Multiple R 0.927088078 R Square 0.859492304 Adjusted R Square 0.824365379 Standard Error 401.9749382...