2. Estimation Techniques And The Linear Equation Flashcards
What needs to be done with semi-variable costs?
They need to be split into fixed and variable costs
What are the common methods for splitting semi-variable costs?
- High-low method
- Scatter diagram
- Simple regression analysis
What is the linear equation for projecting costs?
y = a + bx
What is y on the linear equation?
Total cost; dependent variable
What is x on the linear equation?
Activity level; independent variable
What is a on the linear equation?
Total fixed costs, intercept on y-axis
What is b in the linear equation?
Variable cost per unit; slope
What is the formula for the high-low method?
difference between highest and lost cost / difference between highest and lowest activity levels
Equals variable cost per unit
Another name for simple regression analysis?
Least squares method
How is simple regression analysis used?
Solving simultaneously the formulae;
- Exy = aEx + bEx2
- Ey = an + bEx
What does the n stand for in some regression?
Number of observations
How many values of a and b should be used for simple regression in the workplace?
At least 100
