All 34 Flexible Budgets questions
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Budgeting & Forecasting › Flexible Budgets

What is regression analysis for cost estimation and how does it improve on high-low?

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Answer

Regression fits a line (cost = fixed + variable x activity) to all data points, not just two, using least squares. It gives more reliable estimates of fixed and variable elements and a measure of fit (R²). It improves on high-low by using the whole dataset, reducing the effect of outliers and giving statistical confidence.
Cost = a (fixed) + b (variable/unit) x activity; R² shows fit.
Real-world example A regression on 24 months of overhead data gives a robust fixed/variable split with a high R².

Common follow-ups: Why is regression more reliable than high-low? | What does R² tell you?

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All 34 Flexible Budgets questions