Cost accounting formula used for Cost Prediction and Flexible Budgeting purposes. It is a cost function in the form of:
y = a + bx
where y = the semi-variable (or mixed) costs to be broken up
x = any given measure of activity such as volume and labor-hours
a = the fixed cost component
b = the variable rate per unit of x
For example, the cost-volume formula for factory overhead is y = $200 + $10x where y = estimated factory overhead and x = direct labor-hours, which means that the factory overhead is estimated to be $200 fixed, plus $10 per hour of direct labor.
