Cost Estimation Methods

Cost estimation is…

• the process of determining how a particular cost behave.

• often referred to as an independent variable.

• a criterion commonly used to evaluate a particular regression line.

• also called account analysis and involves a careful examination of the organization's ledger accounts.

An outlier is a data point that falls _____ away from the other _____ in the scatter diagram and is _____ representative of the _____.

• far; points; not; data.

• far; analysis; more; cost.

• close; points; an accurate; data.

• half; intercept; not; month.

The visual-fit method is more objective than the high-low method, since it leaves no room for the cost analyst's judgment.

• TRUE

• FALSE

In the least-squares regression method, the cost line is positioned so as to _________ the ____ of the squared deviations between the __________ and the ___________.

• minimize; sum; cost line; data points.

• maximize; result; cost line; data points.

• minimize; difference; intercept; slope.

• maximize; sum; cost line; data points.

A company has a minimum activity range of 5,000 units and a maximum of 9,000 units. The total plant cost had been measured as $12,300 at its lowest activity point, and $17,900 at its highest. Determine the variable cost per unit.

• $1.40

• $2.30

• $7.55

• $0.40