tailieunhanh - Lecture Fundamentals of cost accounting - Chapter 5: Cost estimation

When managers make decisions they need to compare the costs (and benefits) among alternative actions. In this chapter, we discuss how to estimate the costs required for decision making. Let’s meet Charlene, the owner of Charlene’s Computer Care (3C). In this chapter we are going to help Charlene estimate costs. Three methods used to estimate costs are: engineering estimates, account analysis, and statistical methods. | Cost Estimation Chapter 5 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin When managers make decisions they need to compare the costs (and benefits) among alternative actions. In this chapter, we discuss how to estimate the costs required for decision making. Basic Cost Behavior Patterns . 1 Understand the reasons for estimating fixed and variable costs. Costs Fixed costs Variable costs Total fixed costs do not change proportionately as activity changes. Per unit fixed costs change inversely as activity changes. Total variable costs change proportionately as activity changes. Per unit variable cost remain constant as activity changes. 5 - By now you understand the importance of cost behavior. Cost behavior is the key distinction for decision making. Costs behave as either fixed or variable. Fixed costs are fixed in total; variable costs vary in total. On a per-unit basis, fixed costs vary inversely with activity and variable costs stay the same. Are you getting the idea? Cost behavior is critical for decision making. Methods Used to Estimate Cost Behavior Charlene, owner of Charlene’s Computer Care (3C), wants to estimate the cost of a new computer repair center. Engineering estimates Account analysis Statistical methods LO1 5 - Let’s meet Charlene, the owner of Charlene’s Computer Care (3C). In this chapter we are going to help Charlene estimate costs. Three methods used to estimate costs are: engineering estimates, account analysis, and statistical methods. Engineering Estimates . 2 Estimate costs using engineering estimates. Cost estimates are based on measuring and then pricing the work involved in a task. Identify the activities involved: – Labor – Rent – Insurance Estimate the time and cost for each activity. 5 - Engineering cost estimates are based on measuring and then pricing the work involved in a task. Managers first identify activities such as labor, rent, and insurance and then . | Cost Estimation Chapter 5 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin When managers make decisions they need to compare the costs (and benefits) among alternative actions. In this chapter, we discuss how to estimate the costs required for decision making. Basic Cost Behavior Patterns . 1 Understand the reasons for estimating fixed and variable costs. Costs Fixed costs Variable costs Total fixed costs do not change proportionately as activity changes. Per unit fixed costs change inversely as activity changes. Total variable costs change proportionately as activity changes. Per unit variable cost remain constant as activity changes. 5 - By now you understand the importance of cost behavior. Cost behavior is the key distinction for decision making. Costs behave as either fixed or variable. Fixed costs are fixed in total; variable costs vary in total. On a per-unit basis, fixed costs vary inversely with activity and variable costs