COST APPROACH METHOD

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JAIME OLMEDO HERNANDEZ MARTINEZGRUPO:212032_171 OCTUBRE 2022 COST APPROACH METHOD

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¿cost approach method definition? The cost approach is a valuation method, where it is intended to establish in the most accurate way possible the investment incurred by companies to achieve today the developments that they present and that they plan to exploit commercially. This is how, under the cost approach, it is sought to measure the value of an asset considering the different costs to carry out its substitution for another; The basic assumption of this approach is that the cost of building or buying a new asset is equal to its own value. For their part, they affirm that, under the cost approach, the costs of recreating the future utility of the technological asset that is being valued are calculated, and it is assumed that this value is the future performance of the asset. This valuation approach is usually used when the application is at such an early stage of development that its application in the market is not yet clear, at this stage, the level of uncertainty is higher and the knowledge of the future business is very limited, without However, this approach becomes important in the valuation process as it provides a reference value for the valued asset. Additionally, it states that through the cost approach a minimum value of the asset is determined, because no rational investor would pay more for an asset than the price of a property of the same utility.

COST APPROACH METHOD

COSTS BY DISBURSEMENT PURPOSE Disbursable: They imply a cash outflow, for which they can be recorded in the information generated by accounting. Opportunity: It originates when making a certain decision, which causes the renunciation of another type of option, represents profits, so they will never appear registered in the books. COSTS BY FUNCTIONAL AREAS Manufacturing costs: They are related to the production of an item, they are the sum of direct materials, direct labor and indirect manufacturing costs. Market cost: The sale of a product or service is incurred. Administrative cost: It is incurred in the direction, control and operation of a company and includes the payment of salaries of management and office staff. Financial cost: Relates to obtaining funds for the operation of the company, includes the cost of interest. COSTS FOR SUPPLIES The costs demanded by an activity should be measured on the basis of the current costs of its inputs. If their historical costs were computed, measurements of the moments in which the activities are executed would not be obtained, but merely algebraic sums of measurements of previous moments. COST BY RELATIONSHIP WITH COST OBJECTS This classification considers the possibility of assigning costs to so-called cost objectives, which may be activities, cost centers and products. COSTS IN RELATION TO LEVELS OF ACTIVITY Activity costing measures the cost and performance of activities, based on the use of resources, as well as organizing the relationships of those responsible for the cost centers. COSTS FOR DECISION MAKING It is used exclusively with the objective of being able to choose an alternative among all those planned.

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Related processes and mathematical formulas for calculating the value of the technology using the selected method Basic formula for the Calculation of the cost approach VI = Property Value CR = Replacement Cost Vt = Land value LV = CR – d + Vt DEPRECIATION: Depreciation can occur due to deterioration or obsolescence. Deterioration is a loss of property value, resulting from ordinary wear and tear, disintegration, and exposure to environmental elements over time. Obsolescence can be functional, technological, external. Processes related to the cost approach COST They represent the economic sacrifice incurred within the company for the production or transformation of goods or services. COSTS PER TIME OF CALCULATION 1.Historical: These are past costs, which were generated in a previous period. 2. Default: These are costs that are calculated based on statistical methods and are used to prepare budgets. 3.Reales: It is calculated from the actual consumption in the production process during a period of time.

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How can companies create value from their innovation?

A business innovation is an improvement in business activity through changes in business models, processes, organization, products or marketing to make the business more efficient and achieve a better position in the market. Companies know that if they innovate they can achieve a competitive advantage, that is, generate a differentiating fact over their competitors, which will make them win customers and market share, since the amount of sales is one of the basic indicators that the product, strategy, organization, etc., are up to date. One of the ways to innovate is through technology, which is why many companies have R&D&i departments specialized in seeking competitive advantages that differentiate them in the market. * Business or management model: Adoption of new ways of perceiving customers from new ways of generating value. * Processes: Implementation of new or better manufacturing, logistics or distribution processes. * Market: Implementation of new Marketing methods, including significant improvements in the merely aesthetic design of a product or in packaging, the price of distribution and programming. * Product or service: Market introduction of new and improved products or services. * Organization: Implementation of new organizational methods in the business, knowledge management, training, evaluation and development of human resources, value chain management, business reengineering, management of the quality system in work organization and relationships outward.