Regression analysis method of cost estimation, Cost Accounting

Regression Analysis Method of Cost Estimation

It includes estimating the cost function by utilizing past data or the dependent and the independent variables. Hence the cost function is based upon the regression of the relevant/related variables. The cost function will depend upon the relationship among the independent variable and the dependent variable.

  1. The dependent variable will constitute the relevant cost that may be service, variable cost, overhead cost. And
  2. The independent variable will be the cost drivers whereas the cost drivers will be units of labour, labour hours or raw materials, units of output.

In analysis of regression, a regression model of the form y= a + bx for an easy regression is obtained.  Used for a multiple regression, then a regression model of the form Y = a + b1x1 +b2x2 + bnxn is acquired where a is fixed cost, x1,x2,xn are cost drivers x1,x2,x3 upto xn.

b1,b2, bn are changes in cost along with the change in value of cost driver that is variable cost per unit of change in x1,x2,xn y is the dependant variable (Total cost)

Note here a simple regression produces a cost function of the form as y = a + bx so now we only contain only one variable cost per unit (b) and only one independent variable cost driver x..

Conversely, a multiple regression creates a cost function of the form as y = a + b1,x1+ b2, x2 + bn,xn so now we  have some variable costs per unit (b1,b2,bn)  and some independent variables (x1,x2,xn).

Posted Date: 2/5/2013 4:14:42 AM | Location : United States







Related Discussions:- Regression analysis method of cost estimation, Assignment Help, Ask Question on Regression analysis method of cost estimation, Get Answer, Expert's Help, Regression analysis method of cost estimation Discussions

Write discussion on Regression analysis method of cost estimation
Your posts are moderated
Related Questions
Valuation of Work In Progress The concept of Equivalent units It is a notional quantity of completed goods in the production process. This is a collection of work applic

Relationship among Financial Accounting and Cost Accounting The difference among management and cost accounting may be highlighted by using a number of questions namely as;


In an application of a hand-held clinical thermometer for the National Health Service it is required to use disposable temperature sensors and digital read out of temperature betwe

Your client has asked you to provide guidance on the following potential accounting changes: (1) Change from straight-line method of depreciation to sum-of-the-years'-digits (2) Ch

You sell a machine for $600,000. You allow the client to pay 1/3 at the time of the sale and 1/3 at the end of year one and 1/3 at the end of year two. The company earns 10% on ass

Valuation of Inventory or Closing and Issues Stocks Valuation of inventory aims on attaching a monetary value in the issued or stores for production. It is useful in producing

Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2013 for $8,000,000 and had an estimated useful life of 8 years w

Build-Rite construction has received favorable publicity from guest appearances on a public TV home improvement program. Public TV programming decisions seem to be unpredictable, s

product mix decisions with capacity constraint