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
Intra company transfer pricing A company engaged in production may have several segments division or departments doing production jobs or manufacturing party or fully finished

The Baumol Model in 1952 considers cash management complication as same to inventory management problem. For itself the firm attempts to minimize the total cost that is the sum of

The current sales of M/s ABC are Rs.100 lakhs. Through relaxing the credit standards the firm can produce additional sales of Rs.15 lakhs on that bad debt losses would be 10 percen

what are characteristics of relevant cost?

The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchas

dentify and explain the many classsification of cost for planning,control,performance evaluation and decision making

reasons for favourable or adverse variances i.e. prise usage, mix, yeild

Full Service Recourse Factoring : In this kind of factoring the client has to bear the risk of default made through the debtors. There the factor had advanced funds against book de

Variables Unrestricted variable Yi can be expressed in terms of two non-negative variables by using the substitution: Yi = Yi' - Yi'', Yi', Yi'' ≥ 0 The substitution

Prepare a multiple step income statement, and classified balance sheet for XYZ Corporation for 2013 in good form. The income statement should include the proper earnings per share