What is the advantage of using regression analysis to determine the cost equation?
It will generally be more accurate that the high-low method
. True statement about regression analysis: The R-square generated by the regression analysis is a measure of how well the regression analysis cost equation fits the data.
What would be the cost equation of regression analysis is used?
Use the five steps of the scattergraph method to estimate total fixed costs per year and the variable cost per mile. State your results in the cost equation form
Y = f + vX
by filling in the dollar amounts for f and v.
What is the advantage of using regression analysis for cost estimating purposes rather than the high low method?
Regression analysis is
more accurate
than the high-low method because the regression equation estimates costs using information from ALL observations whereas the high-low method uses only TWO observations. estimates the relationship between the dependent variable and TWO OR MORE independent variables.
Why is regression analysis used for cost estimation?
In contrast to the High Low Method, Regression analysis refers to a technique
for estimating the relationship between variables
. It helps people understand how the value of a dependent variable changes when one independent variable is variable while another is held constant.
Why regression analysis is considered the best method in cost segregation?
The use of linear regression, or
least squares method
, is the most accurate method in segregating total costs into fixed and variable components. The values of a (total fixed cost) and b (variable cost per unit) can be computed through a series of mathematical computations.
Which method is the best method to predict mixed cost?
The high-low method
is used to calculate the variable and fixed cost of a product or entity with mixed costs. It takes two factors into consideration. It considers the total dollars of the mixed costs at the highest volume of activity and the total dollars of the mixed costs at the lowest volume of activity.
What is high-low method formula?
Fixed cost = Highest activity cost − (Variable cost per unit x Highest activity units) or. Fixed cost − Lowest activity cost − (Variable cost per unit x Lowest activity units) Then use all the results to calculate the high–low cost using this formula:
High-low cost = Fixed cost + (Variable cost + Unit activity)
How do you calculate fixed costs?
Take your total cost of production and subtract your variable costs multiplied by the number of units you produced
. This will give you your total fixed cost.
What is the formula to calculate cost?
The equation for the cost function is
C = $40,000 + $0.3 Q
, where C is the total cost. Note we are measuring economic cost, not accounting cost. profit functions (the revenue function minus the cost function; in symbols π = R – C = (P × Q) – (F + V × Q)) will be π = R − C = $1.2 Q − $40,000.
How do you calculate future cost?
- Future price = $30,000 x (1 + 0.001) x (1 + 0.0149)
- Future price = $30,000 x 1.001 x 1.0149.
- Future price = $30,477.45.
Why least square method is better than high-low method?
One of the greatest benefits of the least-squares regression method is
relative accuracy compared to
the scattergraph and high-low methods. The scattergraph method of cost estimation is wildly subjective due to the requirement of the manager to draw the best visual fit line through the cost information.
What are the disadvantages of regression analysis?
Despite the above utilities and usefulness, the technique of regression analysis suffers form the following serious limitations: …
It involves very lengthy and complicated procedure of calculations and analysis
. It cannot be used in case of qualitative phenomenon viz. honesty, crime etc.
What are some common problems with project cost estimation?
- CHALLENGE #1: Quantifying cost impacts. An engineer may need to reduce the cost of a component by 20% through design modifications. …
- CHALLENGE #2: Resource constraints. …
- CHALLENGE #3: Quality of available data. …
- CHALLENGE #4: Large number of organizations involved. …
- CHALLENGE #5: Consistency.
Why is least square method used?
The least-squares method is a mathematical technique that
allows the analyst to determine the best way of fitting a curve on top of a chart of data points
. It is widely used to make scatter plots easier to interpret and is associated with regression analysis.
Which of the following is the most accurate cost estimation method?
Analytic
.
An analytic estimate (also called bottom-up estimating)
is one of the most accurate cost estimation techniques—but it can also be time-intensive. Bottom-up estimating breaks the project down into smaller parts and then creates cost estimates for those variables.
What is the major disadvantage of the high-low method?
A disadvantage of the high-low method is that
the results are estimates, not exact numbers
. An accountant who needs to know the exact dollar amount of fixed expenses each month should contact a vendor directly.
