Gathering data-plotting graph-cost estimating relationship, Managerial Accounting

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Gather data concerning the relationship among the dependent and independent variables

Collecting data is generally the most hard and time-consuming element of CER development. It is necessary that all data be checked and double checked to make sure that all observations are appropriate, comparable, and relatively free of unusual costs.

An adequate number of past observations should be acquired to derive an acceptable cost function.  This must be adjusted to reflect any change of circumstances example, changes in price levels caused by inflation, changes in kinds of equipment used, and so on. The time period used to measure the dependent variable and the cost driver must be similar.

Plot the data on a graph

The graph (generally termed to as a scatter diagram) will point out the common relationship among the dependent variable and the cost driver and will give a visual signal as to whether a lineal cost function can estimate the cost behavior. It will also highlight great observations.


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