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Answer the Comment on my Discussion made for Allan.

Hi Sharglh

Great job on explaining these cost estimation methods! Here are a couple other methods not mentioned: the Industrial Engineering method which analyzes relationships between physical inputs and outputs, and the Conference method which uses the basis of analysis and opinions about costs from various departments. You already mentioned the Account Analysis method (my personal favorite!) and the 2 Quantitative Analysis methods, the high-low and the regression.

In regards to the health care costs, I completely agree with you that being accurate is of the utmost importance. But I just don't know if it would be feasible to use the regression method on health care costs. There are just so many costs involved with health care, I'm not sure that it would be practical or even possible to cover all the costs in a timely manner. I think perhaps, using a method that is a little easier, albeit not quite as accurate, might be the right answer as far as health care costs are concerned.

Eve

Pearson Custom. (2015). Cost Accounting - A Managerial Emphasis. Retrieved from: 

           http://www.view.ebookplus.pearsoncmg.com/ebook/

Answer the two comment to this Discussion :

comment 1: from Dwayne

comment 2: from Janna

Cost estimation is the process mangers use to determine the relationship from data collected from past costs and the activity most related to its increase or decrease over the data collected. This past behavior will help manages to make cost predictions that are more realistic. Therefore, cost predictions will help managers, also, to make a better control decisions and planning for future periods (Horngren, p.344).

Cost estimation Methods

Industrial Engineering: based on strict relationship between inputs and outputs. It is a very detailed method where the raw materials and labor are estimated in amount of product produced. In that sense, it is time consuming. That makes it impractical besides that some inputs (indirect costs) cannot be directly related to outputs (different items produced).

Conference: based on information collected from different departments within the company (R&D, purchase center, manufacturing, etc.). In one sense, the conference method is more credible because it comes from gathered information from different departments. However, it relies on the accuracy and care of the people providing the inputs. 

Account Analysis: estimates costs functions based on different accounts such as variable, fixed, and mixed. This is a widely used approach because it is easy to use and it is cost effective.

Quantitative Analysis: use formal mathematical to use past data observation into cost functions. It has two methods of approach: the high and low method and the regression analysis method being the latter the more accurate of these two approaches.

About estimating health care costs, which basically are mixed costs, is better to use the Account Analysis Method of cost estimation. It uses a mathematical equation to determine the estimation costs within a relevant range. This approach is easy to use and it is cost effective. If more accurate cost estimation is needed, the accounting analysis method could be combined with the Regression Analysis Method to count in all different premiums paid in a relevant range. One issue with consumers is that not everyone needs what is offered in their plans, but is better for the insurance company to combined different services on each different plan (variable costs) with some basic services (fixed costs) generally used (or needed). In that sense, many unhappy consumers has to choose different separate services to cover their needs driving their premiums up. Castlight Health is a company devoted to change that issue that not only affects the consumer (employee), but also the pockets of the employer.  Using a cloud as a service center where employees can choose the service they need from a pool of health care providers without sacrificing the quality of the service. It is an interesting new idea (5 years old), but I think it will change the health care system. I still believe that the mathematical approaches are the most reliable in this topic to costs estimation because there will be variables, fixed, and mixed costs that need to be accurately estimated.

Great job Allan.  In my post I decided the Regression Method would be best, but I like that you combined the two.  Using one to sort of back up the other could definitely work out.  The info on Castligh Health is great.  I've never heard of them, but that is a good idea.

Hi Allan. Allan,

I like how you broke out the different costing structures and defined which is best used by the health insurance platforms. Do you think that this particular method has served the insurance companies well? I recall reading that insurance plans may increase by as much as 60% next year because insurance companies had underestimated how many people would actually enroll in health insurance. In this instance, account analysis may not work well because there was no preset precedent for many people joining. These are numbers that had not been calculated before. I do agree however that this may be the most reliable way to go.