{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

wk2_Ch10n - Ch10:CostEstimation Whatyouneedtoknow...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Ch 10: Cost Estimation
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
What you need to know How to use various methods to understand and estimate  cost behavior Creation of a “new” understanding Use of existing past data How to interpret the results of methods Implications and limitations for forecasts of costs
Image of page 2
Understanding Cost Behavior    We want to understand how spending will vary in a  variety of decision settings Can we separate the fixed and variable costs? Cause-effect relations and cost drivers
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Direct costs (i.e., materials and labor) are generally well  understood Overhead costs tend to be mixed in nature and/or less  consistent from period to period Overhead cost behavior has implications for: Price, production, process and product design decisions Make or buy decisions, special orders, etc. Answers to “what if” questions Our Focus – Overhead Costs
Image of page 4
 Mixed overhead cost behavior Total Power Cost Production volume or other cost driver Total Power Costs The fixed part: the vertical intercept The variable part: the slope “Pure” Fixed Cost “Pure” Variable Cost
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
TC = FC + ( 0 × #units) Assumed Linearity TC =  FC  + [unit  VC x Activity] where TC = TOTAL cost FC = TOTAL fixed cost unit VC = variable cost PER UNIT of the cost driver Activity = # cost driver units Pure Fixed Cost: Pure Variable Cost: TC = 0 + (unit VC × #units)
Image of page 6
Cost Estimation Methods Engineering estimates Conference method Account analysis Statistical methods:  preliminary step: plot the data rough estimates: high-low method more accurate: linear regression
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Engineering Estimates Very detailed production method analysis performed, in  part, to understand costs Usually done for new production processes May supplement past information, especially when changes to production  method occur Closely tied to activity-based costing Cost system in which costs are computed/allocated based on average cost  of activity performed for a product and/or in a particular department
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern