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Cost Estimation Flashcards

Cost Estimation Flashcards
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Techniques to Estimate Project Costs: Three Point Estimating
This technique requires you to find the average of three estimates, which usually include a best case scenario, worst case scenario and most probable scenario.
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Techniques to Estimate Project Costs: Analogous / Top-Down Estimating
You use this technique to estimate the cost of a project when you base your costs on similar projects you worked on in the past.
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Cost Equation
An equation that can help us calculate our total costs. It can draw information from the regression line of a scatter graph.
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Scatter Graph: Regression Line
This line separates the points on a scatter graph. Half of the lines should be on each side of this line. It should meet the graph's Y axis.
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You make 1,000 keyboards for $10,000 or 1,500 keyboards for $13,000 for a variable cost per unit of $6. Use the high-low method to find your fixed cost for the higher price and quantity.
$13,000 = fixed costs + ($6 x 1,500) = fixed costs + $9,000
Fixed costs = $13,000 - $9,000
Fixed costs = $4,000
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Your company can make 1,000 keyboards for $10,000 or 1,500 keyboards for $13,000. Use the high-low method to find your estimated variable cost per unit.
($13,000 - $10,000) / (1,500 - 1,000) = variable cost per unit. $3,000 / 500 = $6 variable cost per unit.
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High-Low Method of Accounting: Formula
Step One: Change in cost / change in total products = variable cost per unit. Step Two: Total cost = fixed costs + (variable costs for each product x total products).
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High-Low Method of Accounting
A process with two steps that allows you to find a product's estimated total cost, fixed costs and variable costs for any production level.
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17 cards in set

Flashcard Content Overview

You can work with this set of flashcards to review the following methods for estimating project costs:

  • Bottom up
  • Top-down / analogous
  • Three point
  • Vendor bid

You'll also be able to focus on variance analysis modeling and the regression equation. Both positive and negative correlation are covered by this set of cards. Furthermore, these cards can help you go over the high-low method of accounting and the formulas used in this process.

Front
Back
High-Low Method of Accounting
A process with two steps that allows you to find a product's estimated total cost, fixed costs and variable costs for any production level.
High-Low Method of Accounting: Formula
Step One: Change in cost / change in total products = variable cost per unit. Step Two: Total cost = fixed costs + (variable costs for each product x total products).
Your company can make 1,000 keyboards for $10,000 or 1,500 keyboards for $13,000. Use the high-low method to find your estimated variable cost per unit.
($13,000 - $10,000) / (1,500 - 1,000) = variable cost per unit. $3,000 / 500 = $6 variable cost per unit.
You make 1,000 keyboards for $10,000 or 1,500 keyboards for $13,000 for a variable cost per unit of $6. Use the high-low method to find your fixed cost for the higher price and quantity.
$13,000 = fixed costs + ($6 x 1,500) = fixed costs + $9,000
Fixed costs = $13,000 - $9,000
Fixed costs = $4,000
Scatter Graph: Regression Line
This line separates the points on a scatter graph. Half of the lines should be on each side of this line. It should meet the graph's Y axis.
Cost Equation
An equation that can help us calculate our total costs. It can draw information from the regression line of a scatter graph.
Techniques to Estimate Project Costs: Analogous / Top-Down Estimating
You use this technique to estimate the cost of a project when you base your costs on similar projects you worked on in the past.
Techniques to Estimate Project Costs: Three Point Estimating
This technique requires you to find the average of three estimates, which usually include a best case scenario, worst case scenario and most probable scenario.
Techniques to Estimate Project Costs: Bottom Up Estimating
This cost estimating technique makes use of a detailed work plan. Using this technique will offer you the highest level of accuracy.
Techniques to Estimate Project Costs: Vendor Bid Analysis
Businesses look at the bids offered by multiple vendors when estimating a project's cost using this technique.
Project Cost Management: S Curve
You can examine this graph to find information about a project's actual expenses and predicted expenses.
Cost Baseline
This type of budget shows you where you will spend money at different parts of the life cycle of the project. We say it is time-phased.
Inverse / Negative Correlation
You see this type of correlation in situations where an independent variable, such as price, changes, and the dependent variable, such as sales, changes in the opposite way.
Positive Correlation
This kind of correlation occurs when an independent variable and the dependent variable change in the same direction.
Regression Equation
An equation used in regression analysis that looks at the coefficients and variables of a given problem.
Variance Analysis Modeling
A form of analysis that can allow businesses to look at variances to track developing trends in their company, including those related to the purchase of raw materials.
Variance
In business this refers to the difference between a project's actual cost and estimated, or budgeted, cost.

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