9.5 Four approaches to estimating a cost function are 1 Industrial engineering approach 2 Conference method 3 Account analysis method 4 Quantitative analysis of current or past cost relationships. 9.6 The conference method develops cost estimates on the basis of analysis and opinions gathered from various departments of an organisation (purchasing, process engineering, manufacturing, employee relations, etc. Three criteria for evaluating cost functions and choosing cost drivers are 1 The speed with which cost estimates can be developed. 2 The pooling of knowledge from experts across functional areas. 3 The improved credibility of the cost function to all personnel. 9.7 A learning curve is a function that shows how labour-hours per unit decline as units of output are increased. Two models used to capture different forms of learning are 1 Cumulative average-time learning model. The cumulative average time per unit declines by a constant percentage, each time the cumulative quantity of the units produced is doubled. 2 Incremental unit-time learning model. The incremental unit time (the time needed to produce the last unit) declines by a constant percentage, each time the cumulative quantity of units produced is doubled. 9.8 Four key assumptions examined in specification analysis are 1 Linearity between the dependent variable and the independent variable. 2 Constant variance of residuals for all values of the independent variable.
