Chapter 2: Cost concepts, behaviour and estimation True/False questions 21. Within the relevant range the variable cost approximates the marginal cost. 22. Cost functions are a mathematical representation of the total cost of a cost object over a relevant range 23. Within the relevant range of activity the change in total cost is linear or close to linear 24. When graphing a cost function the intercept represents the variable cost per unit. 25. The algebraic equation of a cost function is represented as 26. A cost driver is also known as the variable cost per unit. 27. An input or activity that causes changes in total cost is a cost driver 28. The number of patients treated is an example of a cost driver for a hospital's cardiac ward 29. Cost drivers are always considered based on a specific cost object. 30. Cost objects only ever have one cost driver. 31. Past costs can be used for estimating future cost behaviour 32. When estimating future costs it is necessary to classify costs into fixed and variable components 33. One method for determining cost functions that relies on past costs is regression analysis. 34. Engineered estimates of costs can only be used by manufacturing firms to estimate future costs. 35. If the organisation has only operated for a short time several methods of determining the cost function cannot be used. 36. The method of cost estimation that analyses accounting records to determine future cost patterns is called engineered cost analysis. 7. Cost functions are most useful for estimating long term cost patterns. 38. Sater plots provide a visual teehnigue for exploring cost behaviour 39. Computer programmes such as Excel can be used to improve the analysis when using scatter plots 40. Reviewing the pattern of a cost over time is a critical step in determining an engineered cost estimate 1. The two point method uses the highest and lowest data points to estimate a mixed cost function. 42. Preparing a scatter plot is a requirement before applying the two-point method of cost estimation 43. The high-low method is a specific application of the two-point method of cost estimation. 4. When using the two point method of cost estimation or the high low method, the calculation to derive the variable cost component of a mixed cost is: change in cost+change in cost driver. 45. The high low method is useful when there are limited data points to observe. 46. The first step in estimating a cost function is to identify relevant costs for the cost object. 47. When estimating cost functions it is important to continuously evaluate uncertainties and quality of information