# ch2-5 entry

The flashcards below were created by user yhliuaa on FreezingBlue Flashcards.

1. Variance

Sum(prob. * (x-mean)^2)

2. Steps for drawing decision tree

• Identify which decision first?
• 2nd option depend on scenario?
• At event node – compute cost
• After event node – always scenario
• After decision node – always options, then reject one

3. Operating income

(P-VC)Q – FC

4. E (XY) =

• E(X) E(Y) + COV (X, Y)
• COV (X, Y) = 0 if X and Y are independent

5. Variable rate, or slope of regression, =

Change in y/change in x

6. Properties of estimated coefficients using least square regression

• Unbiased
• Efficient ( min. variance)

7. Evaluation of estimated cost function

• Economic plausibility(sign of coeff)
• Slope coeff (high t-value)
• Goodness of fit(high adjusted r2, ie low standard error)
• Linearity, constant variance of residue, independence of residual (DW stat 1.1-2.9), normal distribution

8. R2 indicates…while standard error of regression indicates…

• Percentage of variation in y explained by x
• On average how large the residuals are

9. t-test

• tcal = estimated coeff / standard error
• if tcal > ttab, reject coeff = 0

10. …indicates a strong relation between cost driver and costs

a steep slope

11. confidence interval

estimated coeff +- (critical t-value at 5%significance level) * standard error

12. for multi-variable regression, cost drivers should correlation < ….; otherwise, ….problem arises

0.7; multicollinearity

13. Characteristics of good sample

• Many reliable data
• Values for cost driver spans a wide range

14. Problems that arises with wrong cost function is used

• Cost prediction, eg. CVP analysis
• Cost control: wrong benchmark
• Performance evaluation
• Decision making, eg. Product mix and pricing

15. Reasons for cost functions to be nonlinear

• Economies of scale
• Discounts on large purchase
• Learning effect
• Multiple relevant ranges

16. Cumulative average time learning: formula

• Y=px^q
• Y=average time per unit
• P=time for 1st unit
• X=total no of units produced
• Q=coeff of learning

17. Cumulative average time learning: what if q=0 and q=-1

Avg time is constant

18. Learning percentage formula

Learning % =2^q

19. Cumulative average time learning: total time for producing 5th-7th units?

Y = p*7^(q+1) –p*5^(q+1)

20. Incremental unit-time learning model: m represents

Time to produce last unit in a sequence of x units

21. Incremental unit-time learning model: total time for producing first 3 units

P(1^q+2^q+3^q)

22. Steps to Cal coefficient range; meaning of the range

• 1. Find the slope of the critical constraint
• 2. Find the slope of objective function
• 3. Change the numerator or denominator such that two slopes are equal;
• Within this range optimal production plan does not change; as one product become more profitable relative to the other, production emphasis change

23. When constraint is binding, slack equals

Zero

24. What should management do facing bottleneck?

• Do not overproduce at non-bottleneck
• Increase efficiency and capacity of bottleneck, eg. Elim. Idle time, reduce setup time, shift production from bottleneck

25. finding dual price