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

The manufacturing overhead cost, Rediger Inc. a manufacturing company, has ...

Rediger Inc. a manufacturing company, has provided the following data for the month of June. The balance in the Work in Process inventory account was $22,000 at the beginning of th

Find the discount rate and wacc, 1. A company is considering a project that...

1. A company is considering a project that requires an initial investment of $100 million and will pay $20 million of each of the next 10 years, and nothing thereafter. The company

Irr, The following data pertains to an investment proposal: Required invest...

The following data pertains to an investment proposal: Required investment $400,000 Annual cost savings $105,700 Projected life of investment 6 years Projected salvage value $0 Req

What are the dimensions of the box with the minimum cost, A manufacturing c...

A manufacturing company wants to package its product in a rectangular box with a square base and a volume of 32 cubic inches. The cost of the material used for the top is $.05 squa

Prepare the material cost budget of products of a company, Prepare the Mate...

Prepare the Material Cost Budget of products of a Company For a company along with many products, a periodic budget would be developed given as: Assume a firm has 3 products X

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

Compute the most profitable combination of products, GZ Inc. manufactures t...

GZ Inc. manufactures two products that require both machine processing and labor operations. Although there is unlimited demand for both products, GZ could devote all its capacitie

Determine equivalent units of the product, Determine Equivalent Units of th...

Determine Equivalent Units of the Product Let assume there are 4,000 units of a product in ending inventory out of that 60 percent are fully complete whereas the remaining are

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