Final answer:
Management often simplifies cost estimation by using volume-based costing methods, although activity-based costing may also be employed for complex products. Mathematical models are essential for predicting costs and gaining insights from various cost measures like marginal and fixed costs.
Step-by-step explanation:
When technology and complexity issues arise, management often opts to simplify the cost estimation and costing methods. To manage and predict costs effectively, various approaches can be used, including linear estimation methods, volume-based costing methods, and nonlinear estimation methods. Given the complexity, many firms gravitate towards using volume-based costing methods, as it provides a simplified way to allocate costs based on production volume. However, in scenarios involving a wide variety of products with different levels of complexity and resource consumption, activity-based costing might be used alongside volume-based methods.
It's essential to generate mathematical models to roughly estimate costs for these methods, as these models help predict costs for alternative solutions that may arise during the idea generation phase. Analyzing the science behind a technique and its implementation costs is fundamental for these models, which include materials, fabrication, manufacturing, operation, and maintenance. Moreover, considering factors like fixed cost, marginal cost, average total cost, and average variable cost provides valuable insights for the firm in the decision-making process.