Question

The identification of cost drivers is perhaps the most important step in developing the cost estimate because:

A. It is the first step in cost estimation.

B. It is the final step in cost estimation.

C. There may be a number of relevant drivers, some not immediately obvious.

D. The other steps are easier to execute.

E. It requires much more time than the other steps.

Answer 1

Identifying the cost drivers is important in developing cost estimates because there may be several relevant drivers, some of which are not immediately obvious. It allows for accurate cost estimation and comparison of different alternatives. Therefore, the correct option is C.

Step-by-step explanation:

The identification of cost drivers is an important step in developing the cost estimate because there may be a number of relevant drivers, some not immediately obvious. Cost drivers are the factors that cause costs to increase or decrease, and identifying them helps in accurately estimating the costs of a project or product. For example, in manufacturing, the quantity of raw materials used or the number of labor hours required can be cost drivers.

By identifying the cost drivers, you can focus on the key factors that significantly impact the overall cost. This helps in allocating resources more efficiently and making informed decisions about cost-saving measures. Additionally, understanding the cost drivers allows for accurate cost comparisons across different alternatives or scenarios.

Therefore, option C, 'There may be a number of relevant drivers, some not immediately obvious,' is the correct answer. It is crucial to identify cost drivers early on in the cost estimation process to ensure accurate and reliable cost estimates.