Proponents of activity-based costing believe it is a more accurate way to tie overhead costs to revenue-producing activities, which in turn helps a manufacturer's cost control activities as well as make better and more accurate product lifecycle decisions.
The actual cost method is probably the most accurate cost estimating method when the data is available. The Office of Cost Assessment and Program Evaluation (CAPE) prefers this method since it uses actual or near actual data for the system of interest.
Determine how much your products vary: Process costing is well-suited for companies manufacturing large volumes of uniform products. But job costing is particularly useful for businesses that produce unique or custom products that vary from batch to batch. The uniqueness of your products affects which method is best.
Answer: The two most common methods of costing are job costing and Process costing. Job costing is appropriate for industries that manufacture or perform work according to customer specifications. Process costing is suitable for industries where continuous production and the units produced are the same.
Firstly, the costing system must suit the organization. Some points to be taken into consideration are the size of the organization, the nature of the business, conditions of the economy etc. The ideal costing system must provide information that is necessary for decision making by the management.
1. Bottom-Up Estimation. If a comprehensive work breakdown structure is an option, you can easily use this approach. It's the most accurate estimating technique out there.
Regression analysis tends to yield the most accurate estimate of fixed and variable costs, assuming there are no unusual data points in the data set.
First-in, first-out method (FIFO)
FIFO automatically assumes you're selling shares you held the longest. Method implications: Because asset prices tend to rise over time, using FIFO as your cost basis method will have the oldest shares sold first, and those shares will often have the lowest cost basis.
Cost effectiveness analysis. Cost-effectiveness analysis (CEA) compares the relative costs of the outcomes of two or more courses of action and is considered an alternative to cost-benefit analysis (CBA). CEA is most useful when analysts face constraints that prevent them from conducting cost-benefit analysis.
Detail Estimating
This approach is closely related to scheduling, planning and resource allocation and is both time-consuming and costly. It requires a good knowledge of the activity and also needs to have a reasonable level of definition. It also results in the most accurate estimates.
Variable Costing is particularly useful for internal decision-making in various manufacturing sectors, providing insights into cost behavior related to production volume. Different industries leverage these methods based on their production processes, product types, and financial reporting requirements.
Detailed estimate is the most accurate method and consist of working out the quantities of each of item of works and working the cost. The dimensions are taken directly from the drawings and quantities of each item are calculated. Finally abstracting and billing is done.
1. Standard costing. Standard costing uses predetermined costs for materials and labor. This type of costing is probably the most common method due to its simplicity.
The calculation of resource costs per time unit forces the company to incorporate estimates of the practical capacities of its resources, allowing the ABC cost drivers to provide more accurate signals about the cost and the underlying efficiency of its processes.
A best cost strategy is a competitive strategy that combines cost leadership strategies with differentiation strategies to give customers higher value for their money. See also cost leadership strategy and differentiation strategy and niche strategy.
The weighted average cost method divides the cost of goods available for sale by the number of units available for sale. The WAC method is permitted under both GAAP and IFRS accounting.
Cost Approach to Value
It is the most reliable approach for valuing unique properties. The cost approach provides a value indication that is the sum of the estimated land value, plus the depreciated cost of the building and other improvements.
The Definitive Estimate is the most accurate and detailed. It's made after the project's scope and requirements are well-defined and detailed. It includes a comprehensive breakdown of all costs, including labor, materials, equipment, and other expenses, and has an accuracy range of -5% to +10%.
Top-down estimation
It's the most common estimation method and works well for projects in the early stage. The top-down estimation method is useful in establishing the deadline for completing a project. It also establishes project milestones, making it easier for project managers to track team progress.
Answer: Detailed estimate is the most reliable estimation. A imprecise calculation of the value, number, quantity, or extent of something is defined as an estimate. When a solution is acceptable and is also very close to the true answer, estimates of numbers are employed to make mental calculations easier and faster.
Explanation: Detailed estimate: A detailed estimate should have documents such as report, specifications, drawings/plans, design charts and schedule of rates and is the most accurate method of estimating.
Cost-plus pricing. Cost-plus pricing is one of the most popular approaches used in pricing. It involves calculating the cost of producing one unit of your product, and then adding a mark-up percentage. That is why you'll sometimes see this method described as mark-up pricing.
Under the actual cost method, the cost processor identifies the receipt that is used to satisfy the depletion, and applies the quantity depletion method that is defined in the cost profile. The accounting application currently uses the first in, first out (FIFO) depletion method.