Cost Estimation

Question 1

what are the 4 categories that costs can fall into?

Answer 1

1. Variable costs
2. Fixed costs - this is a cost that does not change depending on the amount of goods you produce
3. Step fixed costs
4. semi-variable costs

Question 2

How can one discover the variable portion and fixed portion of a semi-variable cost?

Example of food cost in plane with passengers
Activity level(people)/Cost level
300/3900
350/4300
400/4700
450/5100
500/5500

Answer 2

you can use the High-low method

variable portion per unit = (cost at highest activity level - cost at lowest activity level) / (activity at the highest level - activity at the lowest level)

(5500-3900)/(500-300) = 8 per unit

Fixed portion = full cost - variable portion
300 * 8 = 2400
3800 - 2400 = 1500 = fixed portion

TESTER
350 * 8 = 2800
2800 - 4300 = 1500 = fixed portion

Question 3

How can one discover the variable portion and fixed portion of a step fixed cost?

Example of food cost in plane with passengers

Answer 3

Its in one of my questions some where… maybe this topics questions

Question 4

What is the concept of the learning curve?

Answer 4

It is based of the idea that when we start performing a new task, as we keep performing it, we become more efficient until we reach a stage where we can’t become more efficient

in other words, we get quicker at making something, the moew we do it

Question 5

What Is the formula for the learning curve?

Answer 5

Y = aX^(log(r)/log(2)) ; b = (log(r)/log2)

Y = cumulative average time taken to produce X units
a = time taken to produce the first unit of output
X = # of units of output under consideration
b = the log of the improvement % DIVIDED BY the log of 2
r = learning rate percentage (decimal form)

Question 6

What are some scenarios where you can use the learning curve?

Answer 6

1. Calculate the average time per unit for a given number of units. - your answer is Y
2. Calculate the total time for a given number of units. - Y times the units
3. Calculate the actual time for specificed unit(s) - Total time for given units including unit MINUS total time for units not including units
4. Calculate the time for a specific unit or several units after the steady state. - its all the same after the steady state

Question 7

How can you calculate the learning rate to use in the learning curve formula?

Example
awdawdafaw

Answer 7

Step 1: rework the formula from “Y = aX^(log(r)/log(2))” to “Y = ar^(log(X)/log(2))”
Step 2: solve for r

refer to Jacob’s email in 3rd year notes for more information