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Unformatted text preview: 20 High-Low Method
The VC per hour of
maintenance is equal to
the change in cost divided
by the change in hours. $2,400
300 21 High-Low Method Total FC = Total Cost – Total VC
Total FC = $9,800 – ($8/hour × 800 hours)
Total FC = $9,800 – $6,400
Total FC = $3,400
22 High-Low Method The Cost Equation for Maintenance Y = $3,400 + $8.00X
23 Regression Method
A method used to analyze mixed costs if a scattergraph plot reveals
an approximately linear relationship between the X and Y variables. This method uses all of the
data points to estimate
the fixed and variable
cost components of a
mixed cost. The goal of this method is
to fit a straight line to the
data that minimizes the
sum of the squared errors.
24 Regression Method
• Software can be used to fit
a regression line through
the data points.
• The cost analysis objective
is the same: Y = a + bX
Regression also provides a statistic, called the R2,
which is a measure of the goodness of fit of the
regression line to the data points.
25 Regression Method
R2 is the percentage of the variation in total cost
explained by the activity.
Total Cost 20 **
* *2 10 * ** *
** R varies from 0% to 100%, and
the higher the percentage the better. 0
0 1 2
Activity 4 X
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This note was uploaded on 02/10/2014 for the course ACCY 121 taught by Professor Fagan,k during the Spring '08 term at CSU Sacramento.
- Spring '08
- Cost Accounting