Regression Analysis for Estimating Costs. Cost Accounting Course. CPA Exam BAR. CMA Exam

Описание: Regression analysis is a powerful statistical method that allows you to examine the relationship between two or more variables of interest. Regression analysis is a way of mathematically sorting out which of those variables does indeed have an impact.

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High Low Method vs. Regression Analysis
The high low method and regression analysis are the two main cost estimation methods used to estimate the amounts of fixed and variable costs. Usually, managers must break mixed costs into their fixed and variable components to predict and plan for the future.
The high low method uses a small amount of data to separate fixed and variable costs. It takes the highest and lowest activity levels and compares their total costs. On the other hand, regression analysis shows the relationship between two or more variables. It is used to observe changes in the dependent variable relative to changes in the independent variable.

High Low Method
The high low method determines the fixed and variable components of a cost. It can be applied in discerning the fixed and variable elements of the cost of a product, machine, store, geographic sales region, product line, etc.

For example, in the production cost of a product, fixed costs may comprise employee’s wages and rental expenses, whereas variable costs include costs incurred in purchasing raw materials.