Cost estimation may be defined with 'a study that attempts to predict among costs and the activity level or cost driver that causes those costs. In practically, managers frequently encounter that cost drivers like what is a cost driver? Hence like machine hours, number of transaction, labour hours, work cells and units of output.
The cost estimating function is "y = a + bx"
- Y signifies net cost
- A signifies cost fixed component of the net cost
- bx signifies the variable costs component of the total cost
- b signifies the unit variable cost it is the gradient of the equation
- x signifies output level
This is the common straight line equation that you have been encountering in elementary mathematics.