Business Glossary

1. in Linear Programming (LP), the requirement that the measure of effectiveness, such as contribution margin or cost and resource usage, must be proportional to the level of each activity conducted individually. For example, each unit of a resource must make the same contribution to the objective function that every other unit of that resource makes.
2. in linear regression, the requirement that the relationship between a mixed cost and an activity variable such as machine-hours is straight line in the form of y = a + bx. This means that the variable portion changes by a constant amount per hour no matter how many hours are used.

statistical procedure for estimating the average relationship between the dependent variable (sales, for example) and one or more independent variables (price and advertising, for example). It is a popularly used method for estimating the cost-volume formula(y = a + bx). simple regression involves one independent variable, e.g., direct labor-hours or machine-hours alone, whereas multiple regression involves two or more independent variables. Assuming a linear relationship, the simple regression model indicates that the relationship is y = a + bx, where a, and b are unknown constants, called regression coefficients. The multiple regression model is y = a₀ + a₁x₁ + a₂x₂ + ... + a_kx_k, where a's are coefficients and x's represent the number of independent variables.

In estimating the cost-volume formula, regression analysis attempts to find a line of best fit. To find the line of best fit, a technique called the least-squares method is widely used.