Final answer:
Cost estimation is the process of estimating the amount of money required by an operating unit to perform assigned tasks and functions. It involves considering fixed and variable costs and can be supported by mathematical models. Cost estimation is vital for businesses to plan and allocate resources effectively.
Step-by-step explanation:
The estimate of the amount of money required by an operating unit to perform the assigned tasks and functions is known as cost estimation. This is an important aspect of business planning as it helps in determining the financial requirements for operations. Cost estimation involves considering both fixed costs, which do not change with the level of production, and variable costs, which vary based on the level of production.
In order to estimate costs, mathematical models can be used to generate rough estimates and predict costs for different alternatives. These models help analyze the relationship between the scientific aspects of a technique and the cost of implementing it. For example, in a barber shop, fixed costs may include rent and equipment expenses, while variable costs may include wages for barbers based on the quantity of haircuts produced.