ACCT 1B Lecture Notes - Lecture 13: Fixed Cost, Cost Driver, Cost Estimate
29 Aug 2020
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Document Summary
Three purposes of estimating costs are cost management, decision making, and strategic planning. Cost estimation- is the process of estimating the relations between costs and the costs drivers that cause these costs. Costs do not just happen they are caused by activities. The challenge for cost-management analysts is to identify the activities that cause costs to estimate the relation between costs and their causes, and to manage the activities that cause those costs. Estimate the relation between cost and activities. Helps to understand how to make the production process more efficient. Deciding among alternative actions, managers must know the costs that each alternative is likely to incur. Specify the activities expected to be performed by people in the organization. Cost estimation assigns a cost to these activities, and helps evaluate employee performance by understanding what the cost should be for performing a particular activity.
