Which of the following statements does not describes cost estimation? A. Cost estimation establishes a relationship between total cost and activity level B. Cost estimation assumes a linear relationship between total costs and the cost drivers C. A cost function can be used to estimate the total cost for any level of activity in the organization D. Cost is segregated into fixed and variable based on their behavior
Question
Which of the following statements does not describes cost estimation? A. Cost estimation establishes a relationship between total cost and activity level B. Cost estimation assumes a linear relationship between total costs and the cost drivers C. A cost function can be used to estimate the total cost for any level of activity in the organization D. Cost is segregated into fixed and variable based on their behavior
Solution
To determine which statement does not describe cost estimation, we will analyze each option one by one.
A. Cost estimation establishes a relationship between total cost and activity level. This statement accurately describes cost estimation. Cost estimation involves establishing a relationship between the total cost and the level of activity. Therefore, option A is not the correct answer.
B. Cost estimation assumes a linear relationship between total costs and the cost drivers. This statement is also true. Cost estimation typically assumes a linear relationship between total costs and the cost drivers. Therefore, option B is not the correct answer.
C. A cost function can be used to estimate the total cost for any level of activity in the organization. This statement is also accurate. A cost function is a mathematical equation that can be used to estimate the total cost for any level of activity in the organization. Therefore, option C is not the correct answer.
D. Cost is segregated into fixed and variable based on their behavior. This statement does not accurately describe cost estimation. Cost estimation does not involve segregating costs into fixed and variable based on their behavior. Instead, it focuses on estimating the total cost based on the level of activity. Therefore, option D is the correct answer.
In conclusion, option D, "Cost is segregated into fixed and variable based on their behavior," does not describe cost estimation.
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