The vertical difference that is a measurement of the distance between actual cost and estimate cost for each observation of a cost driver is called the ________.
A)cost function
B)residual term
C)relevant range
D)high-low method
E)simple regression

Question

Quizplus · Accepted Answer

The vertical difference between actual cost and estimate cost for each observation of a cost driver is called the residual term or error term. It reflects the degree of variability or randomness that exists in the relationship between the cost driver and the cost. The residual term is an important component of cost estimation because it helps to identify the sources of variation in cost and to evaluate the accuracy of the cost function. A good cost function should have small and random residual terms, indicating that it can explain most of the variation in cost with the chosen cost driver.

The Vertical Difference That Is a Measurement of the Distance