COMMERCE 2AB3 Lecture 10: Chapter 10
30 Jun 2015
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Document Summary
Cost estimation : six steps in the cost estimation process: Collect consistent and accurate historical data about past behaviour: looking at the cost drivers of the cost object. Access the accuracy of the cost estimation: methods of cost estimation, there are 2 major methods commonly used in estimating cost functions: The high-low method considers only 2 points of data, the highest and lowest for activity within the relevant range. Changes in total costs can be explained by changes in the level of a single cost driver. 2: come up with a straight line equation (y = mx + b equation) Here the format of the equation is: B = slope coefficient (variable cost rate) X = the volume (quantity) of the cost driver. From this equation we can determine the cost behaviour. If a = 0 and b > 0 then variable. If b = 0 and a > 0 then fixed. Total operating hours: 3, 451 .
