The Use of Probability Theory as a Basis for Planning and Controlling Overhead Costs in Education and Industry. Final Report.

In this report, the author suggests changes in the treatment of overhead costs by hypothesizing that "the effectiveness of standard costing in planning and controlling overhead costs can be increased through the use of probability theory and associated statistical techniques." To test the hypothesis, the author (1) presents an overview of the problem, (2) reviews probability theory, (3) discusses the selection of the proper empirical probability distribution to be used in the study, (4) uses the normal distribution to develop a cost control chart for dollar costs of manufacturing supplies, and (5) discusses the use of simple linear and multilinear regression and correlation analysis for budgeting overhead costs. (Author)