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

Batch costing, Batch Costing This is a kind of job costing that is uti...

Batch Costing This is a kind of job costing that is utilized when production consists of limited repetitive work and definite number of item manufactured in one batch.  A batc

Compute the cost of goods - periodic inventory method, Beginning inventory ...

Beginning inventory on March 1 consisted of 2,000  units each costing $11.20 . During March, the following was purchased for inventory: Date Purchase

Determine the acquisition cost, Waterloo Machining, Inc. paid $1,800,000 fo...

Waterloo Machining, Inc. paid $1,800,000 for factory equipment on January 1, 2012. It paid $100,000 for delivery and $220,000 for installation and modifications.  Waterloo received

Accounting for job order costing, Accounting for Job Order Costing ...

Accounting for Job Order Costing 1.  Direct Labor  Dr W.I.P. Control Account Cr Cash Account 2.  Accrued Direct Wages Dr W.I.P. Control Account Cr Wages

How long does it acquire to implement fca?, It takes about two to three yea...

It takes about two to three years to fully execute FCA and get all employees comfortable with it. Even then, the process will still develop. In Greensboro, North Carolina, it took

Business process re-engineering help to improve the profits, MLC, which was...

MLC, which was established in year 1998, manufactures a range of garden sheds and summerhouses using timber purchased from a various suppliers.The recently appointed managing direc

Sensitivity analysis, Sensitivity Analysis The only certain thing is th...

Sensitivity Analysis The only certain thing is that nothing is sure thing. Cost structures can be anticipated to vary over the time period. Management should vigilantly analyze

Organize the accounting entries, JK is a motor dealership which organizes i...

JK is a motor dealership which organizes its financial statements to 30 November. In the year to 30 November 2009, transactions integrated the following: (a) JK had motor vehicl

Traditional income statement, Traditional income statement: The DU Inn i...

Traditional income statement: The DU Inn is an 80-room hotel located on some mountaintop in Colorado. It has no bar or restaurant and is positioned as a mid-priced, good quality

Calculate the total transportation cost, The sunshine tomato soup shippers ...

The sunshine tomato soup shippers produce tomato soup at three west coast canneries in Bakersfield, phoenix, and Eugene. The soup is shipped to four regional warehouses. Due to hig

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