Question

1. You have been asked to provide the managing director with an approximate cost function for the entity’s activities, and it must be done by this afternoon. Some members of the board of directors want to understand why performance varies so much across store locations. They have asked for a quick analysis today and want a more detailed analysis next week. Which cost estimation technique(s) should you consider using? Explain.

1. You have been asked to provide the managing director with an approximate cost function for the entity’s activities, and it must be done by this afternoon. Some members of the board of directors want to understand why performance varies so much across store locations. They have asked for a quick analysis today and want a more detailed analysis next week. Which cost estimation technique(s) should you consider using? Explain.

Answer 1

Answer 1

Since time is the essence, one of the several cost estimation techniques might be employed. 1st, account analysis will provide a rough estimate. Secondly, latest income statements could be used by using two-point method to approximate the fixed and variable costs, but the managing directors would need to understand that the quality of information could below using this method. 3rd, if enough observations of cost data are readily available, now the regression analysis can be run. However, to use the regression analysis, it usually takes more time to collect the data necessary.