Regression analysis method of cost estimation, Cost Accounting

Assignment Help:

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).


Related Discussions:- Regression analysis method of cost estimation

Estimate the debt and assets ratio, 1. Wrangle Corporation stock sells at a...

1. Wrangle Corporation stock sells at a price of $80 a share and the riskless rate is 7%. Calculate the price of a 9-month call option on Wrangle stock with an exercise price of $7

Prepare cash budget of a company, Prepare Cash Budget of a Company The...

Prepare Cash Budget of a Company The given information concerned to the proposed budget for a company for the months ending on 31 December 1996. Additional Information

The cost cycle - double entry system, entries to be entered into a ledger a...

entries to be entered into a ledger account for the month of July 2009 & prepare an incoem statement. balances at 1/7/2009 Materials control $6150 Labour control (accrued wages)

Overhead absorption, Overhead Absorption Absorption of overheads refer...

Overhead Absorption Absorption of overheads refers to the sharing out of overhead costs to the some cost centers such used the overheads. This is utilized when the overheads c

Goal congruence - behavioural aspects of standards, Goal Congruence - Behav...

Goal Congruence - Behavioural Aspects of Standards A perfect variance analysis and standard costing system must enhance goal congruence between as: i. The goal of individua

Prepare a master budget, Pecos Canyon Winery is a small vineyard/winery loc...

Pecos Canyon Winery is a small vineyard/winery located in the Big Bend area of West Texas. The initial cabernet grape vines were planted in the spring of 2004 with the first wine p

Case study, Managerial ACCT 2 Ulrich Framing is well known for the quality ...

Managerial ACCT 2 Ulrich Framing is well known for the quality of its picture framing. Lucinda Ulrich, CEO, believes that the number of linear feet or framing used is the best is t

Determine the relevant costs, Cowboy Constructions employs a full-time driv...

Cowboy Constructions employs a full-time driver and incurs costs for a vehicle to deliver paperwork between each of their building sites. Select Couriers has offered to carry out t

Profit an economic profit, Johnson Farms owns valuable farm land that permi...

Johnson Farms owns valuable farm land that permits it to make wheat at a lower cost than its competitors. The company reports large profits every year on its accounting statements.

IDLE CAPACITY, HOW DOES IDLE CAPACITY EFFECT COST BEHAVIOR PATTERNS AND FAC...

HOW DOES IDLE CAPACITY EFFECT COST BEHAVIOR PATTERNS AND FACTORY OVERHEAD METHODS?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd