Select the cost driver-cost estimating relationship, Managerial Accounting

Select the cost driver(s):

This might also be termed to as independent, explanatory or predictor variable. A cost driver can be stated as any factor whose change causes a change in the net cost of an activity.

Illustrations of potential cost driver:


•    Direct labor hours
•    Machine hours
•    Number of units
•    Number of production runs
•    Number of orders, and so on.

The potential cost driver must be plausible (that is, make economic logic) and must be precisely measured.

In choosing potential cost drivers for CER development Consider the factors as follows:

(i) Variables must be quantitatively measurable. Parameters like maintainability are hard to use in estimating since they are hard to measure quantitatively.

(ii) Data availability is also significant. When you cannot acquire historical data, it will be not possible to analyze and use the variable as a predictive tool. For illustration, an independent variable like physical dimensions or parts count would be of little value throughout the conceptual stage of system development whenever the values of the independent variables are not identified. Be specifically cautious of any CER based on 2 or 3 data interpretation.

When there is a choice among developing a CER based on performance or physical characteristics, performance characteristics is generally the better choice, since performance characteristics are generally identified before design characteristics.

Posted Date: 12/4/2012 7:31:15 AM | Location : United States







Related Discussions:- Select the cost driver-cost estimating relationship, Assignment Help, Ask Question on Select the cost driver-cost estimating relationship, Get Answer, Expert's Help, Select the cost driver-cost estimating relationship Discussions

Write discussion on Select the cost driver-cost estimating relationship
Your posts are moderated
Related Questions
Constraints 1) A constraint of the type ≤ (≥) can be converted to an equation by adding a slack variable to (subtracting a surplus variable form) the left side of the constrain

The other source of spontaneous short-term financing is the accrued expenses which arise by the general conduct of business. An accrued expense is an expense which has been incurre

Compute the value of share of a company? A company paid dividend amounting to Rs. 0.75 each share during the last year. The company is supposed to pay Rs. 2.00 per share throug

Linear Programming     This section introduces the general method called the simplex algorithm, which is designed to solve any linear program. The information that can be secured

Simple Queues A simple queue has the following characteristics; 1) There is a simple service channel 2) There are ‘discrete’ customers e.g. customers in a bank, or aircra

From the subsequent financial data describe: a) How the airline company has grown-up b) How the company has been capable to earn grater margins at higher levels of sales

Break even analysis and target profit, taxes - Patterson Parkas Company's sales revenue is $30 per unit, variable costs are $19.50 per unit, and fixed costs are $147,000. a)Compute

Airlines give away millions of tickets each year through their frequent flyer programs, with the typical airline awarding a free ticket for each 25,000 miles flown on the airline.

Period of operating cycle implies that total sum of number of days included in the various stages of operation commencing from the purchase of raw materials and ending along with c