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

Contract costing terminology, Contract Costing Terminology Principles ...

Contract Costing Terminology Principles of profit income recognition in contracts The Notional Profit This is a component of two items as: a) Profit taken   = Noti

Analysis of prime cost and overhead variances, You are required to conduct ...

You are required to conduct a detailed analysis of all the prime cost and overhead variances. You must create a fictitious company (and a fictitious cost object) which has at least

Equivalent value of any non-cash assets received, The principle that (1) re...

The principle that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash and (3) m

process costing, how to calculate total costing in weighted average metho

how to calculate total costing in weighted average method

Traditional Overhead Allocation and Activity Based Costing, The controller ...

The controller for U.S. Route 66 Truck Parts is comparing traditional overhead allocationwith ABC. After studying both approaches, the controller prepared the following list of fea

How to calculate the cost per unit for each product , Asian Ltd makes three...

Asian Ltd makes three types of gold watch - the Diva (D), the Classic (C) and the Poser (P). A traditional product costing system is used at present; although an activity based cos

Objective type question, 9. When in the management process do managers seek...

9. When in the management process do managers seek an answer to the question "Did we meet our cost-reduction goals for non-value-adding activities?" a. Planning b. Performing c. Ev

Standards on motivation, ADescribe the impact of different types of standar...

ADescribe the impact of different types of standards on motivations, and specifically, the likely effect on motivation of adopting the labor standard recommended for Geeta & Compan

Explanations on the correct fixation of selling pric, Explanations on the c...

Explanations on the correct fixation of selling price

Subsidiary ledgers and control accounts, Example B & B Mechanical Repai...

Example B & B Mechanical Repairs is a small, family owned partnership that specialises in the servicing and repair of motor vehicles. The business employs three qualified mecha

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