Question

how do we go about determining the cost that goes on the Y axis for the regression analysis in question 5c on chapter 2a of the Managerial Accounting 14th edition text? thanks.

Answer 1

Regression is a technique that is appropriate to understand the association between one independent (or predictor) variable and one continuous dependent (or outcome) variable

Regression is a statistical measure used in finance, investing and other disciplines that attempts to determine the strength of the relationship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables).

Least-Squares Regression Method:

Least-squares linear regression is a statistical technique that may be used to estimate the total cost at the given level of activity (units, labor/machine hours etc.) based on past cost data. It mathematically fits a straight cost line over a scatter-chart of a number of activity and total-cost pairs in such a way that the sum of squares of the vertical distances between the scattered points and the cost line is minimized.

Account analysis

This approach requires that an experienced employee or group of employees review the appropriate accounts and determine whether the costs in each account are fixed or variable. Totaling all costs identified as fixed provides the estimate of total fixed costs. To determine the variable cost per unit, all costs identified as variable are totaled and divided by the measure of activity

High Low method:

The high-low method uses historical information from several reporting periods to estimate costs.For this method the last 12 months data is considered and

Step 1. Identify the high and low activity levels from the data set.

Step 2. Calculate the variable cost per unit (v).

Step 3. Calculate the total fixed cost (f).

Step 4. State the results in equation form Y = f + vX.