Describe the Five Key Approaches to Identification Proposed by Ariyaratne

question 8

Essay

Describe the five key approaches to identification proposed by Ariyaratne (2008).

Recognize the effect of activity levels on cost per unit and the importance of the relevant range in cost analysis.

Understand how mixed costs behave in response to changes in activity level.

Differentiate between variable and fixed costs, including their behavior within the relevant range.

Identify cost classifications within a company's cost structure.

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Definitions:

Future Cash Flows

Estimated future financial transactions that a company expects to receive or pay out.

Fair Value

An estimate of the price at which an asset or liability could be traded in a fair transaction between willing parties, other than in a liquidation.

Straight-Line Depreciation

A method for allocating the financial value of a tangible asset through its lifespan in even yearly payments.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset over its useful life.