The Cost Function
In Brief Managers need a basic understanding of the organization’s costs if they are to react quickly to change and create successful organizational
strategies and operating plans. Managers use classifications and estimation techniques to understand and anticipate future cost behavior.
They can then estimate relevant costs to help make decisions and plan future operations.
Addresses the Following Questions:
• Q1 What are different ways to describe cost behavior?
• Q2 What process is used to estimate future costs?
• Q3 How are the engineered estimate, account analysis, and two–point methods used to estimate cost functions?
• Q4 How does a scatter plot assist with categorizing a cost?
• Q5 How is regression analysis used to estimate a mixed cost function?
• Q6 How are cost estimates used in decision making?
