Accounting › Section P · Managerial accounting and cost behavior › Topic P.6
Estimating a cost equation
A manager planning next month needs to know what costs will be at the expected level of activity. A cost equation answers that, and when a bill mixes fixed and variable parts, past records can be used to estimate it with a scatter graph, the high-low method or regression.
In this topic
- The cost equation
- Building it from known costs
- Choosing the driver and the data
- The scatter graph
- The high-low method
- Worked example: high-low at Thrushwick
- Least-squares regression
- Worked example: regression at Thrushwick
- Using the equation wisely
- Common mistakes to avoid
- Key takeaways
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