Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year.

Question

Quizplus · Accepted Answer

Managers are interested in estimating past cost-behavior functions because the estimates can help them make more accurate cost predictions, or forecasts, about future costs. But better management decisions, cost predictions, and estimation of cost functions can be achieved only if managers correctly identify the factors that affect costs.

Managers Should Use Past Data to Create a Cost Function