Case Study: Industrial Engineering Cost Estimation

COST FUNCTION ESTIMATES:

Celine Dion can use several approaches to estimate cost function for overhead costs using direct labour as its cost driver. Over this report, we will focus on; Industrial Engineering Cost Function Analysis Conference Method Account Analysis Method Quantitative Analysis:

High-Low Point Method

Regression Analysis Method

Industrial Engineering Cost Function Analysis

The Engineering Cost Estimating method builds the overall cost estimate by summing detailed estimates done at lower levels of the work breakdown structure . It’s a technique where the system being costed is broken down into lower-level components (such as parts or assemblies), each of which is costed separately for direct labor, direct material, and

3. Account Analysis Method

This is a way for an accountant to analyze and measure the cost behavior of a firm. The process involves examining cost drivers and classifying them as either fixed or variable cost. The cost accountant then uses the company's data to figure out the estimated variable cost per cost-driver unit or fixed cost period.

The account analysis approach requires four steps:

Step 1: Look through the costs that are included in a particular account and classify each amount as variable or fixed based on judgment.

Step 2: Total the variable costs. Determine variable costs per unit by dividing the total of all the variable costs you identified by the number of units produced (or sold). This will give you the cost per unit.

Variable cost per unit=Total Variable Costs # of Units Produced

Step 3: Total the fixed costs.

Step 4: Plug your answers to steps 2 and 3 into the cost formula by replacing the slope (m) with variable cost per unit and the y-intercept (b) with total fixed costs in the following format: y = m x + b

4.Quantitive

Regression analysis, a statistical analysis technique used by economists and business researchers, helps managers and business owners forecast future conditions, lend quantitative support to managers' judgement, point out flaws in management thinking and provide new insights that can help company decision makers move their businesses toward a more profitable future. And it is also more accurate than high low method.

Disadvantages:

It is more costly and more time consuming. Because it needs thorough analysis and it uses all points of observation to estimate cost