Which of the following five steps (out of six) of cost estimation is out of orde

Question

Which of the following five steps (out of six) of cost estimation is out of order? A. Step 1: Define the cost object to be estimated. B. Step 2: Determine the cost driver(s). C. Step 3: Collect relevant data on the cost of the cost object and the cost driver. D. Step 4: Evaluate the accuracy of the cost estimate. E. Step 5: Graph the data. The identification of cost drivers is perhaps the most important step in developing the cost estimate because: A. It is the first step in cost estimation. B. It is the final step in cost estimation. C. There may be a number of relevant drivers, some not immediately obvious. D. The other steps are easier to execute. E. It requires much more time than the other steps. 3. Regression analysis is better than the high-low method of cost estimation because regression analysis: A. Is mathematical. B. Can provide greater precision and reliability. C. Fits data into a mathematical equation. D. Takes less time. E. Is a statistical method.

Explanation / Answer

1. The correct answer is option D I.e. Step 4: Evaluate the accuracy of the cost estimate. These should be the final step of cost estimate

2. The correct answer is option C I.e. There may be number of relevant drivers, some not immediately obvious. The identification of cost driver is obviously the most important step because if this goes wrong then the entire cost estimate may go wrong.

3. The correct answer is option B I.e. regression analysis can provide greater precision and reliability because high-low method uses only the highest and lowest activity level for cost estimation

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