Which of the following statements related to assumptions about estimating linear cost functions is TRUE?
A)Variations in a single cost driver explain variations in total costs.
B)A cost object is anything for which a separate measurement of costs is desired.
C)A linear function approximates cost behaviour at all ranges of production.
D)Correlation refers to the relationship between fixed and variable costs.
E)The graph of total costs does not form a straight line within the relevant range because of variable costs.

Question

Quizplus · Accepted Answer

The assumption that variations in a single cost driver explain variations in total costs is true for estimating linear cost functions. This is because linear relationships assume that the output or volume of activity is the sole determinant of cost changes, which is reflected in variations in a single cost driver. The other options are either incorrect or not applicable to assumptions about estimating linear cost functions.

Which of the Following Statements Related to Assumptions About Estimating