Cristian David Morales Garcia
steps to perform a cost method analysis
I- Formulate the objectives and goals to be pursued with the project.
- Examine the requirements and limitations.
- Determine and/or estimate in monetary terms the costs and benefits related to each option.
- Incorporate all the important information in addition to the data of costs and benefits of each one of the alternatives.
- Distribute costs and benefits over time.
- Convert the future stream of costs and benefits to their present value.
- Establish a relationship where benefits are the numerator and costs are the denominator (benefits/costs).
- Make a comparison of the benefit-cost ratios in the different proposals. The best solution is the one that offers the highest level of relationship.
- Determine the net benefit of each possible decision. It is calculated by the difference between the present and future benefits and the costs incurred for their realization.
- Evaluate and compare each alternative.
Make the decision based on the approach used, the goals and objectives.
1. -VARIABLE OR MARGINAL DIRECT METHOD: It is based on the theory that a company at
having a certain installed capacity generates by itself fixed or constant costs, therefore
both separates variable costs from fixed or constant costs, due to this characteristic, is that
This method or approach is used in decision making.
2.- METHOD BY ABSORPTION, ABSORPTION OR TRADITIONAL: the only thing you are interested in knowing is
how much it costs to produce one unit therefore separate production costs from production costs
operation.
What is the cost approach method?
It is the way that the cost of seeing, treating and analyzing the different elements according to the
classifications, according to the function that originates the costs and the variability in relation to the volume
of production according to the objective that the company has.
types of cost approach methods
LorIsu
cost approach method
