When Estimating a Cost Function, Accountants Often Begin with Past

question 22

Essay

When estimating a cost function, accountants often begin with past cost information if it is available. Explain why accountants cannot be certain that past costs will provide a good estimate of future costs.

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Definitions:

Confidence Interval

A range of values, derived from sample statistics, that is likely to contain the value of an unknown population parameter.

Population Mean

The average of a set of characteristics (numeric values) in a population; a parameter that describes the central location of the data.

Sample Mean

The average of all data points in a sample, used as an estimate of the population mean.

Unbiased Estimators

Statistical estimators whose expected value is equal to the parameter being estimated.