Wk 6 Discussion (Cost Estimation) - Post 1

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According to our textbook, the two basic assumptions used in estimating cost behavior are:

  1. Variations in the level of a single activity (the cost driver) explain the variations in the related total costs.
  2. Cost behavior is approximated by a linear cost function within the relevant range.


Describe the two assumptions used in cost estimation behavior. Give an example of each of the assumptions.

 

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