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:

90-day Note

A short-term debt instrument that matures in 90 days, often used in business for financing or investment purposes.

Interest-bearing Note

A type of promissory note or loan agreement that includes an obligation to pay a fixed or variable interest rate over the term of the loan.

Journal Entry

A record in accounting that represents a transaction in the books of accounts, detailing the financial operations of a business.

Interest Expense

The cost incurred by an entity for borrowed funds, often reported on the income statement.