Unit-1 cost estimation.pptx - COST AND MANAGERIAL ACCOUNTING Ch-1 Cost Estimation LEARNING OUTCOMES Learning Outcome After completion of this chapter

# Unit-1 cost estimation.pptx - COST AND MANAGERIAL...

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COST AND MANAGERIAL ACCOUNTING Ch-1 Cost Estimation
LEARNING OUTCOMES Learning Outcome After completion of this chapter , student should be able to explain the cost estimation purposes and methods.
COST ESTIMATION Objectives 1- To know in advance the expected cost of the product or service in varying degree of accuracy. 2- To Make investment decisions in the conceptual stage. 3- To implement cost control measures 4- To Estimate the relationships between costs and the related cost drivers 5- To determine the project cost and profit. 6- To develop data base which can be used for future projects. 7- Cost estimation allows for better cost management 8- Cost estimation allows for better decision making 9- Cost estimation allows for better planning 10- Cost estimation allows for better standard setting
COST ESTIMATION METHODS 1) Statistical methods 2) Engineering estimates 3) Account analysis 4) Scattergraph 5) High-low Method
1-STATISTICAL METHOD Simple regression analysis Cost estimation based on one driver TC = F + VX Where: TC = total cost (dependent variable) F = fixed cost V = variable cost per unit of driver X = quantity of the cost driver (independent variable) Practical and easy to be used
2-ENGINEERING METHOD Relies on expected future activity and costs Introduce activity-based costing (ABC ) Expected activities are analyzed to determine the resources they will consume

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