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Y = a + bX
whereas:
Y = Total costs (dependent variable)
a = Fixed costs
b = Variable cost per unit
X = Volume of activity (output) (independent
variable)
Accounting Method OR
Mana gerial Judgment
The equation = Y = a + bX
Y = 22000+28X
In spite of its simplicity, the accounting method
ignores the possibility of mixed costs.
In addition, this method suffers from a subjectivity
problem. Different results might be gained from
different accountants’ background and experiences.
High-Low Method
50000 42000
You are required to separate the total costs into fixed and
variable components; using the high-low method.
High-Low Method
b = Change in cost/Change in output
b = (High cost - Low cost)/(High output - Low output)
=42000-24000/50000-30000
=18000/20000
b = 0.9
Y = a + bX
For high level,
42000 = a + 0.9×50000
a =-3000
M u l t i p l e Re g r e s s i o n A n a l y s i s
Method Or (LS)
o This statistical method. The idea of this method based on
computing an average of cost to represent the cost data, and
an average of output to represent the output data.
o Then we calculate the variable cost per unit as follows:
b = ∑̅x̅ y̅/ ∑̅ x̅² whereas,
x̅ = deviation scores of output, which show how much each
value differs the mean.
y̅ = deviation scores of costs, which show how much each value
differs the mean.
Multiple Reg r ession Anal ysis
Method
2011 300 30 0 -5 0 0
2012 300 40 0 5 0 0
Y = a + bX
35 = a + 0.1×300
a=5
M u l t i p l e Re g r e s s i o n A n a l y s i s
Method
Required: