Statistical Cost Analysis

Abstract

S tatistical techniques provide information useful in making many types of business decisions. For several reasons, however, statistical analysis is seldom used in analyzing production and other costs. Standard costing procedures, such as time and motion studies and direct costing procedures based on past experience and modified by anticipated changes, are sufficient in many decision-making situations. Data limitations frequently hinder the employment of statistical analysis. To use it, data concerning costs, output, and product characteristics must exist for a sufficient number of time periods in one business firm or, alternatively, these data must be available for one time period for several firms producing essentially the same product. Another impediment is the general lack of knowledge about statistical cost analysis. This article will demonstrate the use of statistical analysis for product costing, incremental costing, and cost forecasting. While the illustrations are developed specifically for use by commercial banks in making decisions about demand deposit operations, the basic techniques could be modified for cost analysis of products in other industries or products of a single firm. Detailed cost accounting and production data exist for a sample of nearly 1,000 banks that have voluntarily participated in the Federal Reserve Banks' Functional Cost Analysis (FCA) program. Development of uniform accounting classifications and methods of allocating costs by the FCA has enabled participating banks to compare their performance with the average performance of similarly-sized banks. As a result, the accuracy and consistency of FCA data is excellent. Hence, the data afford a good basis for demonstrating the uses of statistical analysis.