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Name Four Approaches To Estimating A Cost Function

Four approaches to estimating a cost function are the industrial engineering method, conference method, account analysis method, and quantitative analysis of current or past cost relationships. The conference method estimates costs based on analysis and opinions from various departments and has advantages of speed and pooling expertise. The account analysis method classifies costs as variable, fixed, or mixed based on qualitative analysis. The six steps to estimating a cost function based on past relationships include choosing a dependent cost variable, identifying a cost driver, collecting data, plotting data, estimating the function, and evaluating the driver, with data collection typically being most difficult.

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Elliot Richard
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546 views

Name Four Approaches To Estimating A Cost Function

Four approaches to estimating a cost function are the industrial engineering method, conference method, account analysis method, and quantitative analysis of current or past cost relationships. The conference method estimates costs based on analysis and opinions from various departments and has advantages of speed and pooling expertise. The account analysis method classifies costs as variable, fixed, or mixed based on qualitative analysis. The six steps to estimating a cost function based on past relationships include choosing a dependent cost variable, identifying a cost driver, collecting data, plotting data, estimating the function, and evaluating the driver, with data collection typically being most difficult.

Uploaded by

Elliot Richard
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Name four approaches to estimating a cost function.

Four approaches to estimating a cost function are


1. Industrial engineering method.
2. Conference method.
3. Account analysis method.
4. Quantitative analysis of current or past cost relationships.

10-6 Describe the conference method for estimating a cost function. What are two advantages
of this method?

The conference method estimates cost functions on the basis of analysis and opinions about costs
and their drivers gathered from various departments of a company (purchasing, process
engineering, manufacturing, employee relations, etc.). Advantages of the conference method
include
1. The speed with which cost estimates can be developed.
2. The pooling of knowledge from experts across functional areas.
3. The improved credibility of the cost function to all personnel.

10-7 Describe the account analysis method for estimating a cost function.

The account analysis method estimates cost functions by classifying cost accounts in the
subsidiary ledger as variable, fixed, or mixed with respect to the identified level of activity. 
Typically, managers use qualitative, rather than quantitative, analysis when making these cost-
classification decisions.

10-8 List the six steps in estimating a cost function on the basis of an analysis of a past cost
relationship. Which step is typically the most difficult for the cost analyst?

The six steps are


1. Choose the dependent variable (the variable to be predicted, which is some type of cost).
2. Identify the independent variable or cost driver.
3. Collect data on the dependent variable and the cost driver.
4. Plot the data.
5. Estimate the cost function.
6. Evaluate the cost driver of the estimated cost function.
Step 3 typically is the most difficult for a cost analyst.

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