Mekelle University

College of Business and Economics

Department of Accounting and Finance

Program: MA in Accounting & Auditing

Course code: AcAud-424
Assignment 1

BY:
Yalem Fisseha (CBE/PR/063/12)

Submitted to Fitsum Kidane (PhD)

September 2023
Mekelle
Generally the three main cost estimation methods have their
own advantages and disadvantages.
The advantage of scatter diagram easy to plot with two
variable.scatter diagram is an effective way to demonstration
linear patterns.
Scatter diagrams make it possible to determine data flow range,
such as the maximum and minimum values. Scatter graph
method is simple and visual representation of the data.
Disadvantage of scatter diagram include real ling scatter
diagrams incorrectly may lead to false conclusions that one
variable caused the other, when both may have been
influenced by a third. A relationship in a scatter diagram may be
apparent the data because does not cover a wide enough
range.
2. The high low method is an easy way to segregate fixed and
variable costs. By requiring two data values and some algebra,
cost accountants can quickly and easily objective, simple, in
expensive determine information about cost behavior.
Disadvantage of high low method assumes that fixed and unit
variable costs are constant, which is not the case in real life.
Because it uses only two data value in its calculation, variations
in costs are not captured in the estimate.
The high low method does not use or require any complex tools
or programs.
3 .The advantage of regression method is identifies a linear
relationship between variable, providing insights into how
changes in independent variable affect the dependent variable.
The regression method is objective and regression packages
can quickly and easily calculate the fixed cost and variable rate.
The disadvantage of the regression method is lies in the data
used it can only high light relationship between two variables.
As such, it does not take any others into account. And if there
are only out liers, the result becomes skewed.
Based on their advantage and disadvantage in this situation, I
would use regression method because the regression method is
one of the most used and powerful multivariate statistical. It
will always produce the same cost formula.
The least square regression method is more accurate than the
high low method for the following reasons.
The high low method only considers to data point the highest
and the lowest activity for the set of historical data examined.
Regression analysis is more accurate than the scatter graph
because uses the line of best fit to estimate variable and fixed
costs.
Microsoft excel can also be used to calculate the variable and
fixed costs and one of the most popular.
Regression can capture the complex and multifaceted nature of
real world phenomena. By including multiple independent
variables. You can account for more factors that influence the
dependent variable and reduce the error and bias in your
estimates.
In the account analyses is process an accountant or a manager
goes through cost method and regression analysis are used to
predict costs. The least squares regression method and follows
the same cost function as the other methods used. The least
squares regression method is the most accurate and reliable
method.