Managers Might Estimate a Cost Function for a Variety of Reasons

question 125

Essay

Managers might estimate a cost function for a variety of reasons including: budgeting, setting employee work schedules, or discontinuing a line of business. Consider the problem of predicting the future cost of fuel for a company's fleet of automobiles.
a)Identify three factors that might influence the actual future cost of fuel.
b)Identify and explain two potential cost drivers for the cost of fuel.
c)Suppose actual fuel costs turn out to be higher than estimated cost. Would this mean that an inappropriate estimation method was used? Explain.

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Definitions:

Retailers

Businesses that sell products or services directly to consumers, usually in small quantities.

Retail

The sale of goods or services directly to consumers for personal use.

Retailer Cooperatives

Groups of independent retailers who combine their purchasing power to negotiate better prices from suppliers and improve competitiveness.

Category Management

A merchandising technique that focuses on the performance of a product category rather than individual brands.