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    Cost accounting : Cost estimation

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    (See attached file for full problem description)

    Complete problem 11.45 in Hilton. As you complete the problem, refer to the following suggestions:

    You will be developing a cost estimating formula using three different approaches.
    a.      Using account analysis, it is suggested that costs be divided into fixed and variable components to develop a cost estimating formula.
    b.      Using the same data and simple regression, develop another cost estimating formula.

    c.      Using a multiple regression, develop a third cost estimating formula.
    d.      Calculate the expected costs for 80,000 tests using each of the formulas developed.

    e.      Compare the differences between the estimated costs and recommend which approach you would utilize in practice. Give your reasonse

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    Solution Summary

    Based on the data given, total overhead cost estimation formula is developed by using account analysis, simple and multiple regression and the formulas under each method is compared and recommendation is given in the solution