Cost Estimation Methods

Chapter 5, Section 2 of your textbook continues the story of Bikes Unlimited. You consider the four principle cost estimation methods to estimate fixed and variable costs. Each method has its advantages and disadvantages. The choice of a method will depend on the situation at hand. Experienced employees may be able to effectively estimate fixed and variable costs by using the account analysis approach. If a quick estimate is needed, the high-low method may be appropriate. The scatter-graph method can be used to identify any unusual data points which can be thrown out when estimating costs. Finally, regression analysis can be run using computer software and its precise results will provide more accurate cost estimates.