In accounting, an independent variable is ideally a factor that causes a change in the total amount of the dependent variable. In other words, an independent variable should be something that drives a mixed cost to increase or decrease.
To illustrate, let’s assume that a manufacturer’s production equipment uses a significant amount of electricity. Hence, the monthly electricity cost (the dependent variable) will increase when there is an increase in the number of production machine hours (the independent variable).
In reality there are likely to be many independent variables that cause a change in the amount of the dependent variable. In the case of the monthly electricity cost, the independent variables could also include the non-production machines using electricity, the physical size of the products, the skill level of the operators, the outside temperature and humidity, etc.
Multiple regression analysis is a statistical tool that can assist in determining the significant independent variables.
