Question
Asked Jan 14, 2020
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“All the independent variables in a cost function estimated with regression analysis are cost drivers.” Do you agree? Explain.

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Expert Answer

Step 1

Cost driver: Cost driver is one of the measurements that help the company in tracing directly the number of units produced. It is considered as one of the casual factors, at the time of incurrence of the overhead cost. The cost driver is used as activity base while computing the overhead application rate.

Regression analysis: 

Regression analysis is a statistical technique which is used to comprehend the correlation of independent and dependent variable. It is used to analyses the variation in a dependent variable due to variation in independent variables.

 

Step 2

All the independent variables in a cost function estimated with regression analysis are not cost drivers.

Step 3

Independent variable:

 

Independent variables are variables which are influenced in such a way so as to evaluate the value of the dependent variable.

 

  • Each independent variable is a cost function evaluated with the help of regression analysis which may or may not be cost driver.
  • Cost driver is a variable which has a direct relation with the total cost, it can be said that cost driver and total cost have cause a...

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Accounting

Cost Accounting

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