Fundamentals of Cost Accounting 5th Edition By Lanen - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Cost Estimation True / False Questions 1. Cost behavior is the most important characteristic for managerial decision making. True False 2. In general, accounting …
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Fundamentals of Cost Accounting 5th Edition By Lanen – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Chapter 05
Cost Estimation
True / False Questions
| 1. | Cost behavior is the most important characteristic for managerial decision making.
True False |
| 2. | In general, accounting records accumulate cost information according to its behavior (i.e., variable and fixed).
True False |
| 3. | In general, cost behavior results are likely to differ between the engineering method and the account analysis method.
True False |
| 4. | The engineering method of determining cost behavior is particularly useful for new activities or products.
True False |
| 5. | One advantage of the engineering method is that it does not require data from prior periods to estimate cost behavior.
True False |
| 6. | One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions.
True False |
| 7. | The account analysis method is more subjective than other cost estimation methods because it relies heavily on the personal judgment and experience of accountants.
True False |
| 8. | In general, the account analysis method focuses on the underlying relationship between cost and activities from the previous period.
True False |
| 9. | The relevant range represents those activity levels for which valid cost relationships have been observed.
True False |
| 10. | A scattergraph is useful for identifying outliers/irrelevant data points.
True False |
| 11. | One disadvantage of the high-low method is the highest and lowest points may not be representative of normal operating activities.
True False |
| 12. | One advantage that regression techniques have over other cost estimation methods is it generates information that can be used to determine how well the estimated cost equation will predict future costs.
True False |
| 13. | Because outliers are extreme data points, they can be included in the regression analysis and not significantly affect the results.
True False |
| 14. | In general, the use of multiple independent variables increases the proportion of the variation in the dependent variable explained by the cost equation.
True False |
| 15. | One way to control the effects of a nonlinear relation between total costs and volume is to reduce the relevant range.
True False |
| 16. | The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity.
True False |
| 17. | Cost estimates using regression analysis are always more accurate and dependable than cost estimates using the scattergraph methods.
True False |
| 18. | A basic assumption of most cost estimation methods is cost behavior patterns are linear within the relevant range.
True False |
| 19. | The quality of the cost equation depends on collecting appropriate data.
True False |
| 20. | Different cost estimations methods may produce different cost equations, even when using the same set of data.
True False |
Multiple Choice Questions
| 21. | Which of the following statements is (are) true regarding cost behaviors?
(A) In general, accounting records accumulate cost information according to its behavior.
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| 22. | Which of the following is the difference between variable costs and fixed costs: (CMA adapted)
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| 23. | A cost driver is defined as: (CMA adapted)
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| 24. | Which cost estimation method does not use the company’s cost information as its primary source of information about the relationship between total costs and activity levels?
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| 25. | A manager is trying to estimate the manufacturing costs of a new product. The company makes several other products that utilize some of the same manufacturing procedures as the new product. Which cost estimation method would be the best method to determine the total cost of manufacturing the new product?
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| 26. | Engineering cost estimates are usually based on operating conditions that are considered:
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| 27. | Which of the following cost estimation methods finds the fixed portion of a mixed cost before calculating the variable portion?
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| 28. | Which of the following costs would most likely be classified as variable, assuming the account analysis method is used to determine cost behaviors?
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| 29. | Given the following information, compute the total number of units for the period:
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| 30. | In the cost equation TC = F + VX, X is best described as the:
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| 31. | In the cost equation TC = F + VX, V is best described as the:
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| 32. | Ballard Company incurred a total cost of $8,600 to produce 400 units of pulp. Each unit of pulp required five (5) direct labor hours to complete. What is the total fixed cost if the variable cost was $1.50 per direct labor hour?
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| 33. | The term “relevant range” as used in cost accounting means the range over which:
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| 34. | Which of the following cost estimation methods finds the variable portion of a mixed cost before calculating the fixed portion?
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| 35. | A disadvantage of the high-low method of cost analysis is that it:
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| 36. | In the standard regression equation of y = a + bx, the letter b is best described as the:
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| 37. | In the standard regression equation of y = a + bx, the letter a is best described as the:
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| 38. | In the standard regression equation of y = a + bx, the letter y is best described as the:
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| 39. | The coefficient of correlation is:
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| 40. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
In a regression equation expressed as y = a + bx, how is the letter b best described? (CMA adapted)
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| 41. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
How is the letter y in the regression equation best described? (CMA adapted)
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| 42. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
How is the letter x in the regression equation best described? (CMA adapted)
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| 43. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
Based on the data derived from the regression analysis, what are the estimated costs for 1,600 customer-visits in a month? (CMA adapted)
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| 44. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
What is the percent of the total variance that can be explained by the regression equation? (CMA adapted)
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| 45. | The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:
What are the direct labor costs per machine hour?
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| 46. | The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:
If Macon expects to use 10,000 machine hours next month, what are the estimated direct labor costs?
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| 47. | Fromme’s Frocks has the following machine hours and production costs for the last six months of last year:
If Fromme expects to incur 14,000 machine hours in January, what will be the estimated total production cost using the high-low method?
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| 48. | The controller of Fortnight Co. has requested a quick estimate of the manufacturing supplies needed for the Cleveland Plant for the month of July, when production is expected to be 470,000 units to meet the ending inventory requirements and sales of 475,000 units. Fortnight Co.’s budget analyst has the following actual data for the last three months.
Using the high-low method to develop a cost estimating equation, the estimate of needed manufacturing supplies for July would be: (CMA adapted)
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| 49. | The Crater Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. The records also indicated that overhead of $9,730 was incurred at 2,600 machine hours. What is the variable cost per machine hour using the high-low method to estimate the cost equation?
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| 50. | The Missou Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. The records also indicated that overhead of $9,730 was incurred at 2,600 machine hours. What is the total estimated cost for 2,600 machine hours using the high-low method to estimate the cost equation?
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| 51. | The cost accountants at the Barkley Company regressed total overhead costs and direct labor hours for the past 30-months and reported the following results:
What is the estimated overhead cost if 225 direct labor hours are expected to be used in the upcoming period? (rounded to the nearest whole dollar)
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| 52. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
What would be the cost equation if regression analysis is used?
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| 53. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
Based upon the data derived from the regression analysis, 420 maintenance hours in a month would mean the maintenance costs would be budgeted at: (rounded to the nearest whole dollar)
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| 54. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
What is the variable cost per hour using the high-low method to estimate the cost equation?
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| 55. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
What is the fixed cost per month using the high-low method to estimate the cost equation?
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| 56. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
Using the high-low method to estimate cost behavior, 420 maintenance hours in a month would mean the maintenance costs would be budgeted at:
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| 57. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
What would be the cost equation if the high-low method is used?
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| 58. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses the high-low method to estimate costs, the variable cost per credit hour is:
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| 59. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for administrative salaries is:
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| 60. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses the high-low method to estimate costs, the cost equation for administrative salaries is:
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| 61. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
Based on the results of the high-low analysis, the estimate of administrative costs in a month with 1,000 credit hours would be: (rounded to the nearest whole dollar)
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| 62. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses regression analysis to estimate costs, the cost equation for administrative salaries is:
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| 63. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses regression analysis to estimate costs, the estimate of the variable portion of administrative salaries is:
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| 64. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of administrative salaries is:
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| 65. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
Based on the results of the regression analysis, the estimate of administrative costs in a month with 1,000 credit hours would be: (rounded to the nearest whole dollar)
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| 66. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
The correlation coefficient (rounded to the 3rd decimal) for the regression equation for administrative costs is:
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| 67. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
The percent of the total variance that can be explained by the regression is:
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| 68. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
Based on the results of the regression analysis, the estimate of the variable portion of administrative costs in a month with 200 credit hours would be:
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| 69. | In determining cost behavior in business, the cost function is often expressed as Y = a + bX. Which one of the following cost estimation methods should not be used in estimating fixed and variable costs for the equation? (CMA adapted)
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| 70. | Which of the following may be used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of the material handled? (CPA adapted)
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| 71. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses the high-low method to estimate costs, the variable cost per machine hour is:
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| 72. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for electricity cost is:
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| 73. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses the high-low method to estimate costs, the cost equation for electricity cost is:
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| 74. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
Based on the results of the high-low analysis, the estimate of electricity costs in a month with 2,200 machine hours would be:
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| 75. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses regression analysis to estimate costs, the cost equation for electricity cost is:
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| 76. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses regression analysis to estimate costs, the estimate of the variable portion of electricity cost is:
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| 77. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of electricity cost is:
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| 78. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
Based on the results of the regression analysis, the estimate of electricity costs in a month with 2,200 machine hours would be: (rounded to the nearest whole dollar)
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| 79. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
The correlation coefficient for the regression equation for electricity costs is:
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| 80. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
The percent of the total variance that can be explained by the regression is:
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| 81. | Balcom Enterprises is planning to introduce a new product that will sell for $110 a unit. Manufacturing cost estimates for 20,000 units for the first year of production are:
• Direct materials $1,000,000
Based on this information, what percentage of the variation in overhead costs is explained by the independent variable?
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| 82. | Balcom Enterprises is planning to introduce a new product that will sell for $110 a unit. Manufacturing cost estimates for 20,000 units for the first year of production are:
• Direct materials $1,000,000
Based on this information, what is the total overhead cost for an estimated activity level of 45,000 direct labor-hours?
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| 83. | Balcom Enterprises is planning to introduce a new product that will sell for $110 a unit. Manufacturing cost estimates for 20,000 units for the first year of production are: • Direct materials $1,000,000 • Direct labor $720,000 (based on $18 per hour × 40,000 hours) Although overhead has not be estimated for the new product, monthly data for Balcom’s total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows:
Based on this information, how much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)?
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| 84. | Balcom Enterprises is planning to introduce a new product that will sell for $110 a unit. Manufacturing cost estimates for 20,000 units for the first year of production are:
• Direct materials $1,000,000
Based on this information, what is the expected contribution margin per unit to be earned during the first year on 20,000 units of the new product? (Assume that all marketing and administrative costs are fixed.)
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| 85. | Given actual amounts of a semi-variable cost for various levels of output, the method that will always give the most reliable measure of the fixed and variable components is the:
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| 86. | Which of the following statements regarding regression analysis is (are) true?
(A) One way to control the effects of a nonlinear relationship between total costs and activity is reduce the relevant range.
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| 87. | Which of the following is a common assumption of cost estimation?
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| 88. | Which of the following is not a data problem an analyst must watch for when estimating cost behavior?
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| 89. | Which of the following is not a data problem an analyst must watch for when estimating cost behavior?
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| 90. | In the learning curve equation Y = aXb, the Y term represents:
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| 91. | In the learning curve equation Y = aXb, the X term represents:
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| 92. | In the learning curve equation Y = aXb, the “a” term represents:
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| 93. | In the learning curve equation Y = aXb, the “b” term represents:
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| 94. | Which of the following statements regarding the learning phenomenon is true?
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| 95. | Bachmann Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
How much time will be needed to complete the 4th unit?
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| 96. | Bachmann Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
How much time will be needed to complete the 8th unit?
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Essay Questions
| 97. | The following manufacturing costs were incurred by the Miracle Mile Company in 2015:
These costs were incurred to produce 50,000 units of product. Variable manufacturing overhead was 70% of the direct materials cost. Required: (a.) Prepare a cost estimate for an activity level of 40,000 units of product in 2016.
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| 98. | The following manufacturing costs were incurred by the Trinitram Company in 2015:
These costs were incurred to produce 25,000 units of product. Variable manufacturing overhead was 80% of the direct materials cost. Required: (a.) Prepare a cost estimate for an activity level of 20,000 units of product in 2016.
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| 99. | The Thomas Company’s total overhead costs at various levels of activity are presented below:
Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 9,000 direct labor hour level of activity is as follows:
Required: (a.) Using the high-low method, determine the cost formula for maintenance.
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| 100. | The Feline Company has been having some difficulties estimating its manufacturing overhead costs. In the past, manufacturing overhead costs have been related to production levels. However, some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and average production lot size for 2016.
Required: (a.) Use the high-low method to estimate next month’s manufacturing overhead costs, assuming the company is planning to produce 92,000 units.
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| 101. | Argo Company ran a regression analysis using direct labor hours as the independent variable and manufacturing overhead costs as the dependent variable. The results are summarized below:
Argo is planning on operating at a level that would require 12,000 direct labor hours per month in the upcoming year. Required: (a.) Use the information from the regression analysis to write the cost estimation equation for the manufacturing overhead costs.
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| 102. | The Feline Company has been having some difficulties estimating its manufacturing overhead costs. In the past, manufacturing overhead costs have been related to production levels. However, some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and average production lot size for 2016.
Regression analysis results of the information presented above are as follows:
Multiple regression:
(a.) Use the results from the ordinary regression and estimate next month’s manufacturing overhead costs, assuming the company is planning to produce 92,000 units. (final answer should be rounded to the nearest whole dollar)
|
| 103. | The Ornate Company produces a single product and has total costs ranging from $321,875 (at 20,000 units) to $966,875 (at 80,000 units). Sales volume in 2016 was 32,000, and operating income was $45,125. Ornate’s product is highly specialized; therefore, no units are kept in inventory.
Required: (a.) Determine the cost equation for Ornate’s costs.
|
| 104. | Iowa Enterprises had an average cost of $10.75 during a month when 50,000 units were produced. When production doubled several months later, the average cost dropped to $8.25.
Required: (a.) Determine the fixed and variable portions of production costs.
|
| 105. | Washington Products had costs of $600,000 when sales equaled 75,000 units. When sales increased by 25,000 units, costs increased by $125,000. The selling price is $9 per unit.
Required: (a.) Determine the fixed and variable portions of costs.
|
| 106. | New Venture, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 20%. New Venture found that the first unit of a new product required 120 hours to complete. The second unit was completed using only 114 hours. New Venture believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $25/hour. The following factors are available for various rates of learning: 80% learning, b = -.3219; 85%, b = -.2345; 90%, b = -.1520; 95%, b = -.0740.
Required: (a.) What will the total labor cost be for the contract?
|
| 107. | Market Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
Required: (a.) How much time will be needed to complete the 4th unit?
|
| 108. | Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
Required: (a.) What is the equation for utility costs using the regression analysis?
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| 109. | Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
Required: (a.) What is the equation for utility costs using the high-low method?
|
| 110. | Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year’s data are presented below:
Required: (a.) What is the equation for administrative costs using the high-low method?
|
| 111. | Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year’s data are presented below:
Required: (a.) What is the equation for administrative costs using the regression analysis?
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| 112. | The Wonder Drug Company’s total overhead costs at various levels of activity are presented below:
Assume that the overhead costs above consist of indirect labor, scheduling salaries, and maintenance. The breakdown of these costs for the month of November is as follows:
Required: (a.) Using the high-low method, determine the cost formula for maintenance.
|
| 113. | The Norcross Company has traditionally estimated manufacturing overhead costs using production volume. Some of the production managers believe that the number of setups may also have an impact on monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and number of setups for 2016.
Regression analysis results of the information presented above are as follows: Required: (a.) Use the results from the ordinary regression and estimate next month’s manufacturing overhead costs, assuming the company is planning to produce 75,000 units. (final answer should be rounded to the nearest whole dollar)
|
| 114. | Barnard Enterprises had an average cost of $8.60 during a month when 75,000 units were produced. When production was 125,000 units several months later, the average cost dropped to $6.98.
Required: (a.) Determine the fixed and variable portions of production costs.
|
| 115. | Doran Products had costs of $950,000 when sales equaled 55,000 units. When sales increased to 85,000 units, total costs increased to $1,400,000. The selling price is $21 per unit.
Required: (a.) Determine the fixed and variable portions of costs.
|
| 116. | Markham, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 30%. Markham found that the first unit of a new product required 90 hours to complete. The second unit was completed using only 76.5 hours. Markham believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $40/hour. The following factors are available for various rates of learning: 80% learning, b = -.3219; 85%, b = -.2345; 90%, b = -.1520; 95%, b = -.0740.
Required: (a.) What will the total labor cost be for the contract?
|
| 117. | Woodman Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
Required: (a.) How much time will be needed to complete the 4th unit?
|
| 118. | Below are several examples of costs that are labeled fixed or variable according to their typical accounting designations. Under which circumstances would any of these costs behave in a manner opposite to that listed?
a. Direct labor—variable.
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| 119. | When using past data to predict a cost that has fixed and variable components, it is possible to have an equation with a negative intercept. Does this mean that at a zero production level, the company will make money on its fixed costs? Explain.
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| 120. | Describe the engineering method of cost estimation. Provide two advantages and two disadvantages associated with the engineering approach to cost estimation.
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| 121. | Explain the difference between the engineering method of cost estimation and the account analysis method.
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| 122. | When preparing cost estimates for account analysis purposes, should the costs be extracted from the historical accounting records?
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| 123. | Describe two advantages and two disadvantages of the high-low method of cost estimation.
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| 124. | Is it possible to compensate for the effects of price instability when preparing cost estimates using high-low or regression techniques?
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| 125. | J.C. Riley owns Riley’s Auto Repair Shop. J.C. is trying to determine whether the company’s advertising program is successful. He has used a spreadsheet program to estimate the relationship between advertising expenditures and sales dollars. Monthly data for the past two years were entered into the program. The regression results indicated the following: Sales dollars = $169, 000 – ($200 × Advertising expenditures) Correlation coefficient = -.864 To J.C., the results imply that advertising is actually reducing sales. Can you help explain to him what might cause the negative relationship between advertising expenditures and sales?
|
| 126. | Southside Hospital is trying to get a better idea of the costs in its cardiac surgical unit. Unit cost data for supplies, labor, etc. have been collected for a three-year period. After analyzing the data using Excel, the following output was generated, based on 1,500 procedures. Intercept = $2,169, 000 Coefficient on procedures $972 Correlation coefficient = .448 R2 = .189 The controller asks you for advice on whether to rely on this estimate. Based on the output, what would you say?
|
| 127. | What are “outliers” and what effect does their presence have when using regression analysis for cost estimation?
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| 128. | Describe the effect on cost estimation of four of the following five problems: 1) missing data, 2) outliers, 3) allocated and discretionary costs, 4) inflation, or 5) mismatched time periods.
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| 129. | Your manager asks you for a cost estimate to open a new retail outlet and says, “I want you to use statistical analysis, so it will be objective because it is based on real data.” How would you respond?
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| 130. | Fast-food restaurants, like Taco Bell and McDonalds are known for high employee turnover, high quality, and low costs. Using your knowledge of the learning phenomenon, how do these fast-food chains get high quality and low costs when they have so much employee turnover?
|
| 131. | Assume that as part of their recent merger, Dell and EMC are perfecting a new device that will access and coordinate the Internet of Things. The new company is interested in estimating the impact of learning on the cost of producing this new device and plan to use data from previous products to estimate the learning parameter. What are the advantages of doing this? What are the disadvantages?
|
Chapter 05 Cost Estimation Answer Key
True / False Questions
| 1. | Cost behavior is the most important characteristic for managerial decision making.
TRUE This is a fundamental concept. |
| AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-01 Understand the reasons for estimating fixed and variable costs. Topic: Basic Cost Behavior Patterns |
| 2. | In general, accounting records accumulate cost information according to its behavior (i.e., variable and fixed).
FALSE Accounting records accumulate cost information by account. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-01 Understand the reasons for estimating fixed and variable costs. Topic: Basic Cost Behavior Patterns |
| 3. | In general, cost behavior results are likely to differ between the engineering method and the account analysis method.
TRUE Results are likely to differ from method to method. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-01 Understand the reasons for estimating fixed and variable costs. |
| 4. | The engineering method of determining cost behavior is particularly useful for new activities or products.
TRUE This is true because there often is no history to rely on. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-02 Estimate costs using engineering estimates. Topic: What Methods are Used to Estimate Cost Behavior? |
| 5. | One advantage of the engineering method is that it does not require data from prior periods to estimate cost behavior.
TRUE The engineering method is based on what needs to be done, not what was done in prior periods. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-02 Estimate costs using engineering estimates. Topic: What Methods are Used to Estimate Cost Behavior? |
| 6. | One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions.
TRUE The account analysis method is based on existing circumstances. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 7. | The account analysis method is more subjective than other cost estimation methods because it relies heavily on the personal judgment and experience of accountants.
TRUE Different accountants will have different experience and will classify items accordingly. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 8. | In general, the account analysis method focuses on the underlying relationship between cost and activities from the previous period.
TRUE The identification of the relationship between this relationship (the dependent and independent variable) is key to the analysis. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 9. | The relevant range represents those activity levels for which valid cost relationships have been observed.
TRUE This is a definition of the term relevant range. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 10. | A scattergraph is useful for identifying outliers/irrelevant data points.
TRUE This visual representation gives an indication of unusual or extreme points that are outside the area determined to be the norm. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 11. | One disadvantage of the high-low method is the highest and lowest points may not be representative of normal operating activities.
TRUE High and low points may reflect unusual circumstances. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 12. | One advantage that regression techniques have over other cost estimation methods is it generates information that can be used to determine how well the estimated cost equation will predict future costs.
TRUE It is objective, provides a number of statistics not available from other methods, and could be the only feasible method when more than one predictor is used. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 13. | Because outliers are extreme data points, they can be included in the regression analysis and not significantly affect the results.
FALSE Outliers will significantly affect the results as they did in the High and Low analysis. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 14. | In general, the use of multiple independent variables increases the proportion of the variation in the dependent variable explained by the cost equation.
TRUE This is a basic principal. The adjusted R-squared (R2) is the correlation coefficient squared and adjusted for the number of independent variables used to make the estimate. This adjustment to R2 recognizes that as the number of independent variables increases, R2 (unadjusted) increases. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 15. | One way to control the effects of a nonlinear relation between total costs and volume is to reduce the relevant range.
TRUE This is done as a basis for defining cost-volume-profit relationship by the use of a smaller range of data in order to avoid the need to use differential calculus. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-06 Identify potential problems with regression data. Topic: What Methods are Used to Estimate Cost Behavior? |
| 16. | The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity.
TRUE As capacity is approached there are changes in the costs such as additional overtime due to scheduling problems. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-06 Identify potential problems with regression data. Topic: What Methods are Used to Estimate Cost Behavior? |
| 17. | Cost estimates using regression analysis are always more accurate and dependable than cost estimates using the scattergraph methods.
FALSE Not always. If the data is linear the scattergraph method will give the same results as regression analysis. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-06 Identify potential problems with regression data. Topic: What Methods are Used to Estimate Cost Behavior? |
| 18. | A basic assumption of most cost estimation methods is cost behavior patterns are linear within the relevant range.
TRUE Most cost estimation models are linear models and assume that the underlying data is linear. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-07 Evaluate the advantages and disadvantages of alternative cost estimation methods. Topic: How is an Estimation Method Chosen? |
| 19. | The quality of the cost equation depends on collecting appropriate data.
TRUE The results obtained are only as good as the data used. If data improves, so will the results. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-07 Evaluate the advantages and disadvantages of alternative cost estimation methods. Topic: How is an Estimation Method Chosen? |
| 20. | Different cost estimations methods may produce different cost equations, even when using the same set of data.
TRUE The general rule is that moving up the hierarchy of cost estimation methods will cost more to implement but will return a more accurate result. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-07 Evaluate the advantages and disadvantages of alternative cost estimation methods. Topic: How is an Estimation Method Chosen? |
Multiple Choice Questions
| 21. | Which of the following statements is (are) true regarding cost behaviors?
(A) In general, accounting records accumulate cost information according to its behavior.
Accounting records accumulate information by account and not by behavior. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-01 Understand the reasons for estimating fixed and variable costs. Topic: Basic Cost Behavior Patterns |
| 22. | Which of the following is the difference between variable costs and fixed costs: (CMA adapted)
Variable costs per unit are constant, fixed costs in total are constant; in the long term all costs are variable. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-01 Understand the reasons for estimating fixed and variable costs. Topic: Basic Cost Behavior Patterns |
| 23. | A cost driver is defined as: (CMA adapted)
A cost driver is a causal factor that increases the total cost of a cost objective. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-01 Understand the reasons for estimating fixed and variable costs. Topic: Basic Cost Behavior Patterns |
| 24. | Which cost estimation method does not use the company’s cost information as its primary source of information about the relationship between total costs and activity levels?
The engineering method uses time and motion studies (estimates), rather than cost estimates. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-02 Estimate costs using engineering estimates. Topic: What Methods are Used to Estimate Cost Behavior? |
| 25. | A manager is trying to estimate the manufacturing costs of a new product. The company makes several other products that utilize some of the same manufacturing procedures as the new product. Which cost estimation method would be the best method to determine the total cost of manufacturing the new product?
A new product has no previous history so there is no past data points, regression, or account analysis ability. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-02 Estimate costs using engineering estimates. Topic: What Methods are Used to Estimate Cost Behavior? |
| 26. | Engineering cost estimates are usually based on operating conditions that are considered:
Engineering estimates are often based on optimal conditions. This results in a difficulty in selecting this technique. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-02 Estimate costs using engineering estimates. Topic: What Methods are Used to Estimate Cost Behavior? |
| 27. | Which of the following cost estimation methods finds the fixed portion of a mixed cost before calculating the variable portion?
Account analysis finds the fixed portion of a mixed cost before calculating the variable portion; all of the other methods estimate the variable portion either first or simultaneously with fixed costs. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-02 Estimate costs using engineering estimates. |
| 28. | Which of the following costs would most likely be classified as variable, assuming the account analysis method is used to determine cost behaviors?
Only indirect materials would have variable behavior. All the other items have fixed behavior. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 29. | Given the following information, compute the total number of units for the period:
$132,600 = $75(units) + 12,000($2.70) + .50(12,000)($2.70) + $36,000; Units = 640 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 30. | In the cost equation TC = F + VX, X is best described as the:
The letter “X” is best described as the activity level used to estimate the total cost; for example, this would be the volume in number of units of output, by definition. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 31. | In the cost equation TC = F + VX, V is best described as the:
The letter “V” is the variable cost per unit which makes up the slope of the variable cost curve. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 32. | Ballard Company incurred a total cost of $8,600 to produce 400 units of pulp. Each unit of pulp required five (5) direct labor hours to complete. What is the total fixed cost if the variable cost was $1.50 per direct labor hour?
$8,600 = FC + $1.50(400)(5); FC = $5,600 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 33. | The term “relevant range” as used in cost accounting means the range over which:
Relevant range is the level of activity for which a cost estimate may be valid. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 34. | Which of the following cost estimation methods finds the variable portion of a mixed cost before calculating the fixed portion?
Account analysis finds the fixed first; regression and engineering find fixed and variable simultaneously; the high-low method finds the variable portion of a mixed cost before calculating the fixed portion. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 35. | A disadvantage of the high-low method of cost analysis is that it:
The estimates are not always inaccurate; the high-low method is fast to apply, and it doesn’t rely solely on judgment. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 36. | In the standard regression equation of y = a + bx, the letter b is best described as the:
The letter “b” is the slope of the equation; this is a basic definition of the term of the formula. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 37. | In the standard regression equation of y = a + bx, the letter a is best described as the:
The letter “a” is the intercept of the equation; this is a basic definition of the term of the formula. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 38. | In the standard regression equation of y = a + bx, the letter y is best described as the:
The letter “y” is best described as the dependent variable; this is a basic definition of the term of the formula. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 39. | The coefficient of correlation is:
This is the definition of the coefficient of correlation. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 40. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
In a regression equation expressed as y = a + bx, how is the letter b best described? (CMA adapted)
The letter b is best described as the estimate of the cost for an additional customer visit. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 41. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
How is the letter y in the regression equation best described? (CMA adapted)
The letter y is best described as the observed store cost for a given month. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 42. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
How is the letter x in the regression equation best described? (CMA adapted)
The letter x is best described as the observed customer visits for a given month. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 43. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
Based on the data derived from the regression analysis, what are the estimated costs for 1,600 customer-visits in a month? (CMA adapted)
The estimated costs for a month with 1,600 customer visits is $4,824 (= $1,496 + $2.08 × 1,600 customer-visits). |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 44. | Brewsky’s is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
What is the percent of the total variance that can be explained by the regression equation? (CMA adapted)
The total variance that can be explained by the regression is 86.8% (= R2). |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 45. | The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:
What are the direct labor costs per machine hour?
VC per M/C Hr. = ($200,000 – 120,000)/(14,000 – 6,000) = $10.00 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 46. | The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:
If Macon expects to use 10,000 machine hours next month, what are the estimated direct labor costs?
VC per unit = ($200,000 – 120,000)/(14,000 – 6,000) = $10.00: FC = $120,000 – $10(6,000) = $60,000; TC = $60,000 + $10 (10,000) = $160,000 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 47. | Fromme’s Frocks has the following machine hours and production costs for the last six months of last year:
If Fromme expects to incur 14,000 machine hours in January, what will be the estimated total production cost using the high-low method?
VC per unit = ($12,080 – 9,580)/(15,500 – 11,500) = $.625; FC = $12,080 – $.625(15,500) = $2,392.50; TC = $2,392.50 + $.625(14,000) = $11,142.50 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 48. | The controller of Fortnight Co. has requested a quick estimate of the manufacturing supplies needed for the Cleveland Plant for the month of July, when production is expected to be 470,000 units to meet the ending inventory requirements and sales of 475,000 units. Fortnight Co.’s budget analyst has the following actual data for the last three months.
Using the high-low method to develop a cost estimating equation, the estimate of needed manufacturing supplies for July would be: (CMA adapted)
VC per unit = ($853,560 – 723,060)/(540,000 – 450,000) = $1.45 per unit; FC = $853,560 – $1.45(540,000) = $70,560; TC = $70,560 + $1.45(470,000) = $752,060 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 49. | The Crater Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. The records also indicated that overhead of $9,730 was incurred at 2,600 machine hours. What is the variable cost per machine hour using the high-low method to estimate the cost equation?
($14,182 – 8,748)/(4,200 – 2,300) = $2.86 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 50. | The Missou Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. The records also indicated that overhead of $9,730 was incurred at 2,600 machine hours. What is the total estimated cost for 2,600 machine hours using the high-low method to estimate the cost equation?
VC = ($14,182 – 8,748)/(4,200 – 2,300) = $2.86; FC = $14,182 – 2.86(4,200) = $2,170; TC = $2,170 + $2.86(2,600) = $9,606 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 51. | The cost accountants at the Barkley Company regressed total overhead costs and direct labor hours for the past 30-months and reported the following results:
What is the estimated overhead cost if 225 direct labor hours are expected to be used in the upcoming period? (rounded to the nearest whole dollar)
$596.36 + $41.27(225) = $9,882.11 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 52. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
What would be the cost equation if regression analysis is used?
Maintenance Costs = 684.65 + 7.2884 × Hours of Activity. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 53. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
Based upon the data derived from the regression analysis, 420 maintenance hours in a month would mean the maintenance costs would be budgeted at: (rounded to the nearest whole dollar)
$684.65 + $7.2884(420) = $3,746 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 54. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
What is the variable cost per hour using the high-low method to estimate the cost equation?
($4,470 – 2,820)/(520 – 300) = $7.50 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 55. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
What is the fixed cost per month using the high-low method to estimate the cost equation?
VC = ($4,470 – 2,820)/(520 – 300) = $7.50; FC = $2,820 – 7.50 × 300 = $570 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 56. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
Using the high-low method to estimate cost behavior, 420 maintenance hours in a month would mean the maintenance costs would be budgeted at:
$570 + $7.50(420) = $3,720 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 57. | The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted)
What would be the cost equation if the high-low method is used?
VC = ($4,470 – 2,820)/(520 – 300) = $7.50; FC = $2,820 – 7.50 × 300 = $570 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 58. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses the high-low method to estimate costs, the variable cost per credit hour is:
VC = ($225,580 – 82,613)/(1,392 – 115) = $111.96 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 59. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for administrative salaries is:
VC = ($225,580 – 82,613)/(1,392 – 115) = $111.96; FC = $225,580 – 111.96 × 1,392 = $69,731.68 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 60. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses the high-low method to estimate costs, the cost equation for administrative salaries is:
VC = ($225,580 – 82,613)/(1,392 – 115) = $111.96; FC = $225,580 – 111.96 × 1,392 = $69,731.68 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 61. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
Based on the results of the high-low analysis, the estimate of administrative costs in a month with 1,000 credit hours would be: (rounded to the nearest whole dollar)
$69,731.68 + $111.96 × 1,000 credit-hours = $181,691.68 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 62. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses regression analysis to estimate costs, the cost equation for administrative salaries is:
Using the Excel output, Cost = $96,647.02 + $103.06 × Credit-hours. |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 63. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses regression analysis to estimate costs, the estimate of the variable portion of administrative salaries is:
Using the Excel output, Cost = $103.06 × Credit-hours. |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 64. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of administrative salaries is:
Using the Excel output, Cost = $96,647.02 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 65. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
Based on the results of the regression analysis, the estimate of administrative costs in a month with 1,000 credit hours would be: (rounded to the nearest whole dollar)
$96,647.02 + $103.06 × 1,000 = $199,707 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 66. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
The correlation coefficient (rounded to the 3rd decimal) for the regression equation for administrative costs is:
The correlation coefficient for the regression equation for administrative costs is Multiple R or 0.932. |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 67. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
The percent of the total variance that can be explained by the regression is:
The percent of the total variance that can be explained by the regression is r-squared or 86.8%. |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 68. | The College of Business at Northeast College is accumulating data as a first step in the preparation of next year’s budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
The controller’s office has analyzed the data and has given you the results from the regression analysis:
Based on the results of the regression analysis, the estimate of the variable portion of administrative costs in a month with 200 credit hours would be:
$103.06 × 200 = $20,612 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 69. | In determining cost behavior in business, the cost function is often expressed as Y = a + bX. Which one of the following cost estimation methods should not be used in estimating fixed and variable costs for the equation? (CMA adapted)
Management analysis of data is a judgmental approach. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 70. | Which of the following may be used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of the material handled? (CPA adapted)
Only multiple regression analysis is a cost estimation approach. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 71. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses the high-low method to estimate costs, the variable cost per machine hour is:
VC = ($31,000 – 13,500)/(4,700 – 1,900) = $6.25 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 72. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for electricity cost is:
VC = ($31,000 – 13,500)/(4,700 – 1,900) = $6.25; FC = $31,000 – (6.25 × 4,700) = $1,625 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 73. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses the high-low method to estimate costs, the cost equation for electricity cost is:
VC = ($31,000 – 13,500)/(4,700 – 1,900) = $6.25; FC = $31,000 – (6.25 × 4,700) = $1,625 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 74. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
Based on the results of the high-low analysis, the estimate of electricity costs in a month with 2,200 machine hours would be:
$1,625 + $6.25 × 2,200 machine-hours = $15,375 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 75. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses regression analysis to estimate costs, the cost equation for electricity cost is:
Using the Excel output, Cost = $3,726.88 + $5.77 × Machine-hours. |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 76. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses regression analysis to estimate costs, the estimate of the variable portion of electricity cost is:
Using the Excel output, Cost = $5.77 × Machine-hours. |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 77. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of electricity cost is:
Using the Excel output, Cost = $3,726.88. |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 78. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
Based on the results of the regression analysis, the estimate of electricity costs in a month with 2,200 machine hours would be: (rounded to the nearest whole dollar)
$3,726.88 + $5.77 × 2,200 = $16,421 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 79. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
The correlation coefficient for the regression equation for electricity costs is:
Multiple R or the correlation coefficient for the regression equation for electricity costs is 0.965. |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 80. | Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
The percent of the total variance that can be explained by the regression is:
The percent of the total variance that can be explained by the regression is the r-square or 0.932. |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 81. | Balcom Enterprises is planning to introduce a new product that will sell for $110 a unit. Manufacturing cost estimates for 20,000 units for the first year of production are:
• Direct materials $1,000,000
Based on this information, what percentage of the variation in overhead costs is explained by the independent variable?
R2 explains the variation in Y from the X regressor. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 82. | Balcom Enterprises is planning to introduce a new product that will sell for $110 a unit. Manufacturing cost estimates for 20,000 units for the first year of production are:
• Direct materials $1,000,000
Based on this information, what is the total overhead cost for an estimated activity level of 45,000 direct labor-hours?
$120,000 + ($5 × 45,000) = $345,000 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 83. | Balcom Enterprises is planning to introduce a new product that will sell for $110 a unit. Manufacturing cost estimates for 20,000 units for the first year of production are: • Direct materials $1,000,000 • Direct labor $720,000 (based on $18 per hour × 40,000 hours) Although overhead has not be estimated for the new product, monthly data for Balcom’s total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows:
Based on this information, how much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)?
($1,000,000 ÷ 20,000) + ($720,000 ÷ 20,000) + ($5 × 2 labor-hours) = $50 + $36 + $10 = $96 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Topic: What Methods are Used to Estimate Cost Behavior? |
| 84. | Balcom Enterprises is planning to introduce a new product that will sell for $110 a unit. Manufacturing cost estimates for 20,000 units for the first year of production are:
• Direct materials $1,000,000
Based on this information, what is the expected contribution margin per unit to be earned during the first year on 20,000 units of the new product? (Assume that all marketing and administrative costs are fixed.)
($1,000,000 ÷ 20,000) + ($720,000 ÷ 20,000) + ($5 × 2 labor-hours) = $50 + $36 + $10 = $96; $110 – $96 = $14 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 85. | Given actual amounts of a semi-variable cost for various levels of output, the method that will always give the most reliable measure of the fixed and variable components is the:
Linear regression will always give the most reliable measure of the fixed and variable components for various levels of output; high-low may give the best line but scattergraph and account analysis rely on judgment. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 05-06 Identify potential problems with regression data. Topic: What Methods are Used to Estimate Cost Behavior? |
| 86. | Which of the following statements regarding regression analysis is (are) true?
(A) One way to control the effects of a nonlinear relationship between total costs and activity is reduce the relevant range.
Both A and B are true; when capacity is approached there are more scheduling problems and overtime may be needed, changing the variable cost. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-06 Identify potential problems with regression data. Topic: What Methods are Used to Estimate Cost Behavior? |
| 87. | Which of the following is a common assumption of cost estimation?
The two basic assumptions of cost estimation are: single (or few) cost driver(s) and linearity of costs. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-07 Evaluate the advantages and disadvantages of alternative cost estimation methods. Topic: How is an Estimation Method Chosen? |
| 88. | Which of the following is not a data problem an analyst must watch for when estimating cost behavior?
Depreciable assets do not create data problems. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-07 Evaluate the advantages and disadvantages of alternative cost estimation methods. Topic: How is an Estimation Method Chosen? |
| 89. | Which of the following is not a data problem an analyst must watch for when estimating cost behavior?
Non-numeric data is easily incorporated into the analysis using indicator variables. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-07 Evaluate the advantages and disadvantages of alternative cost estimation methods. Topic: How is an Estimation Method Chosen? |
| 90. | In the learning curve equation Y = aXb, the Y term represents:
In this equation, the Y term represents the labor time required to produce the last single unit. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-09 (Appendix B) Understand the mathematical relationship describing the learning phenomenon. Topic: Learning Phenomenon |
| 91. | In the learning curve equation Y = aXb, the X term represents:
In this equation, the X term represents the cumulative number of units. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-09 (Appendix B) Understand the mathematical relationship describing the learning phenomenon. Topic: Learning Phenomenon |
| 92. | In the learning curve equation Y = aXb, the “a” term represents:
In this equation, the “a” term represents the labor time required to produce the first unit. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-09 (Appendix B) Understand the mathematical relationship describing the learning phenomenon. Topic: Learning Phenomenon |
| 93. | In the learning curve equation Y = aXb, the “b” term represents:
In this equation, the “b” term represents the index of learning. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-09 (Appendix B) Understand the mathematical relationship describing the learning phenomenon. Topic: Learning Phenomenon |
| 94. | Which of the following statements regarding the learning phenomenon is true?
Learning curves are nonlinear. Learning means the latest unit takes less time than the previous units. So, as production doubles, the time to produce the latest unit decreases. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-09 (Appendix B) Understand the mathematical relationship describing the learning phenomenon. Topic: Learning Phenomenon |
| 95. | Bachmann Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
How much time will be needed to complete the 4th unit?
68/80 = 85% × 68 = 57.80 hours |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 05-09 (Appendix B) Understand the mathematical relationship describing the learning phenomenon. Topic: Learning Phenomenon |
| 96. | Bachmann Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
How much time will be needed to complete the 8th unit?
68/80 = 85% × 68 = 57.80 hours for 4th unit × 85% = 49.13 hours for 8th unit |
| AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Gradable: automatic Learning Objective: 05-09 (Appendix B) Understand the mathematical relationship describing the learning phenomenon. Topic: Learning Phenomenon |
Essay Questions
| 97. | The following manufacturing costs were incurred by the Miracle Mile Company in 2015:
These costs were incurred to produce 50,000 units of product. Variable manufacturing overhead was 70% of the direct materials cost. Required: (a.) Prepare a cost estimate for an activity level of 40,000 units of product in 2016. (a.) $960,220 (2016) Feedback: (a.) Variable overhead costs (2015) = .70($225,000) = $157,500
(1) [($225,0000)/50,000)(1.12)](40,000) = $201,600 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 98. | The following manufacturing costs were incurred by the Trinitram Company in 2015:
These costs were incurred to produce 25,000 units of product. Variable manufacturing overhead was 80% of the direct materials cost. Required: (a.) Prepare a cost estimate for an activity level of 20,000 units of product in 2016. (a.) $482,175 (2016) Feedback: (a.) Variable overhead costs (2015) = .80($112,500) = $90,000
(1) [($112,500)/25,000)(1.15)](20,000) = $103,500 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 99. | The Thomas Company’s total overhead costs at various levels of activity are presented below:
Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 9,000 direct labor hour level of activity is as follows:
Required: (a.) Using the high-low method, determine the cost formula for maintenance. (a.) $12,000 + 8.36667 × Direct Labor Hour Feedback: (a.) Utilities per hour = $137,700/9,000 = $15.30 per direct labor hour |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 3 Hard Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 100. | The Feline Company has been having some difficulties estimating its manufacturing overhead costs. In the past, manufacturing overhead costs have been related to production levels. However, some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and average production lot size for 2016.
Required: (a.) Use the high-low method to estimate next month’s manufacturing overhead costs, assuming the company is planning to produce 92,000 units. (a.) $999,498 Feedback: (a.) Variable cost per unit = ($1,053,500 – 825,000)/(105,000 – 50,000) = $4.154 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 101. | Argo Company ran a regression analysis using direct labor hours as the independent variable and manufacturing overhead costs as the dependent variable. The results are summarized below:
Argo is planning on operating at a level that would require 12,000 direct labor hours per month in the upcoming year. Required: (a.) Use the information from the regression analysis to write the cost estimation equation for the manufacturing overhead costs. (a.) Total manufacturing overhead costs = $14,600 + ($12.55 × Direct Labor Hours) Feedback: (b.) Total manufacturing overhead costs = $14,600 + ($12.55)(12,000) = $165,200 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 1 Easy Gradable: manual Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 102. | The Feline Company has been having some difficulties estimating its manufacturing overhead costs. In the past, manufacturing overhead costs have been related to production levels. However, some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and average production lot size for 2016.
Regression analysis results of the information presented above are as follows:
Multiple regression:
(a.) Use the results from the ordinary regression and estimate next month’s manufacturing overhead costs, assuming the company is planning to produce 92,000 units. (final answer should be rounded to the nearest whole dollar) (a.) $974,107 Feedback: (a.) Total manufacturing costs = $691,741 + ($3.0692 × 92,000) = $974,107 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 103. | The Ornate Company produces a single product and has total costs ranging from $321,875 (at 20,000 units) to $966,875 (at 80,000 units). Sales volume in 2016 was 32,000, and operating income was $45,125. Ornate’s product is highly specialized; therefore, no units are kept in inventory.
Required: (a.) Determine the cost equation for Ornate’s costs. (a.) $106,875 + 10.75 × units
(c.) 22,500 units; $348,750 Feedback: (a.) Variable cost per unit = ($966,875 – 321,875)/(80,000 – 20,000) = $10.75 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 3 Hard Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 104. | Iowa Enterprises had an average cost of $10.75 during a month when 50,000 units were produced. When production doubled several months later, the average cost dropped to $8.25.
Required: (a.) Determine the fixed and variable portions of production costs. (a.) total cost = $250,000 + $5.75 × units Feedback: Total costs must be used rather than unit costs. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 3 Hard Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 105. | Washington Products had costs of $600,000 when sales equaled 75,000 units. When sales increased by 25,000 units, costs increased by $125,000. The selling price is $9 per unit.
Required: (a.) Determine the fixed and variable portions of costs. (a.) Costs = $225,000 + $5 × units sold
Feedback: (a.) Variable cost = $125,000/25,000 = $5.00. Fixed cost: $600,000 – 75,000 × $5.00 = $225,000 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 106. | New Venture, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 20%. New Venture found that the first unit of a new product required 120 hours to complete. The second unit was completed using only 114 hours. New Venture believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $25/hour. The following factors are available for various rates of learning: 80% learning, b = -.3219; 85%, b = -.2345; 90%, b = -.1520; 95%, b = -.0740.
Required: (a.) What will the total labor cost be for the contract? (a.) 871.36 hrs × $25 = $21,784 Feedback: (a.) The learning rate is 114 hrs/120 hrs = 95% learning rate.
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| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 3 Hard Gradable: manual Learning Objective: 05-08 (Appendix A) Use Microsoft Excel to perform a regression analysis. Topic: Learning Phenomenon |
| 107. | Market Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
Required: (a.) How much time will be needed to complete the 4th unit? (a.) 225 × .9 = 202.50 Feedback: Learning rate = 225/250 = 90% |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-08 (Appendix A) Use Microsoft Excel to perform a regression analysis. Topic: Learning Phenomenon |
| 108. | Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
Required: (a.) What is the equation for utility costs using the regression analysis? (a.) $4,472.26 + $5.329 × machine hours Feedback: (c.) $4,472.26 + $5.329 × 3,000 = $20,459.26 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 109. | Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
Required: (a.) What is the equation for utility costs using the high-low method? (a.) $1,950.19 + $5.7692 × units Feedback: (a.) Variable: ($37,200 – 16,200)/(6,110 – 2,470) = $5.7692; Fixed: $37,200 – 6,110 × 5.7692 = $1,950.19 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 110. | Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year’s data are presented below:
Required: (a.) What is the equation for administrative costs using the high-low method? (a.) $2,145.94 + $0.6346 × units Feedback: (a.) Variable: ($40,920 – 17,820)/(61,100 – 24,700) = $0.6346; Fixed: $40,920 – 61,100 × .6346 = $2,145.94 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 111. | Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year’s data are presented below:
Required: (a.) What is the equation for administrative costs using the regression analysis? (a.) $4,919.48 + $0.586154 × units Feedback: (c.) $4,919.48 + $0.586154 × 30,000 = $22,504.10 |
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| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 112. | The Wonder Drug Company’s total overhead costs at various levels of activity are presented below:
Assume that the overhead costs above consist of indirect labor, scheduling salaries, and maintenance. The breakdown of these costs for the month of November is as follows:
Required: (a.) Using the high-low method, determine the cost formula for maintenance. (a.) $24,000 + $9.50 per Direct Labor Hour Feedback: (a.) Indirect labor per hour = $219,600/18,000 = $12.20 per direct labor hour |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 113. | The Norcross Company has traditionally estimated manufacturing overhead costs using production volume. Some of the production managers believe that the number of setups may also have an impact on monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and number of setups for 2016.
Regression analysis results of the information presented above are as follows: Required: (a.) Use the results from the ordinary regression and estimate next month’s manufacturing overhead costs, assuming the company is planning to produce 75,000 units. (final answer should be rounded to the nearest whole dollar) (a.) $883,356 Feedback: (a.) Total manufacturing costs = $650,398 + ($3.1061 × 75,000) = $883,356 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-05 Interpret the results of regression output. Topic: What Methods are Used to Estimate Cost Behavior? |
| 114. | Barnard Enterprises had an average cost of $8.60 during a month when 75,000 units were produced. When production was 125,000 units several months later, the average cost dropped to $6.98.
Required: (a.) Determine the fixed and variable portions of production costs. (a.) Total cost = $303,750 + $4.55 × units Feedback: Total costs must be used rather than unit costs. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 3 Hard Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 115. | Doran Products had costs of $950,000 when sales equaled 55,000 units. When sales increased to 85,000 units, total costs increased to $1,400,000. The selling price is $21 per unit.
Required: (a.) Determine the fixed and variable portions of costs. (a.) Costs = $125,000 + $15 × units sold
Feedback: (a.) Variable cost = ($1,400,000 – 950,000)/(85,000 – 55,000) = $15.00. Fixed cost: $950,000 – 55,000 × $15.00 = $125,000 |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 116. | Markham, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 30%. Markham found that the first unit of a new product required 90 hours to complete. The second unit was completed using only 76.5 hours. Markham believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $40/hour. The following factors are available for various rates of learning: 80% learning, b = -.3219; 85%, b = -.2345; 90%, b = -.1520; 95%, b = -.0740.
Required: (a.) What will the total labor cost be for the contract? (a.) 534.21 hrs × $40 = $21,368.40 Feedback: (a.) The learning rate is 76.5 hrs/90 hrs = 85% learning rate.
|
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 3 Hard Gradable: manual Learning Objective: 05-08 (Appendix A) Use Microsoft Excel to perform a regression analysis. Topic: Learning Phenomenon |
| 117. | Woodman Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
Required: (a.) How much time will be needed to complete the 4th unit? (a.) 90 × .8 = 72.00 Feedback: Learning rate = 90/112.5 = 80% |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Gradable: manual Learning Objective: 05-08 (Appendix A) Use Microsoft Excel to perform a regression analysis. Topic: Learning Phenomenon |
| 118. | Below are several examples of costs that are labeled fixed or variable according to their typical accounting designations. Under which circumstances would any of these costs behave in a manner opposite to that listed?
a. Direct labor—variable. a. Direct labor would be fixed if a union contract limited the company’s ability to lay off unneeded personnel or if management were contemplating a change in facilities but maintaining the same labor force. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Gradable: manual Learning Objective: 05-01 Understand the reasons for estimating fixed and variable costs. Topic: Basic Cost Behavior Patterns |
| 119. | When using past data to predict a cost that has fixed and variable components, it is possible to have an equation with a negative intercept. Does this mean that at a zero production level, the company will make money on its fixed costs? Explain.
It is possible for empirical data to show a negative intercept even though fixed costs cannot be negative. It may be that the slope of the cost curve is particularly steep over the values used in the estimation process. It may be that the operations are relatively far away from the intercept. This would be particularly likely if the company were operating close to capacity. Negative intercepts usually mean that there is some error in the specification of the cost estimate. If the company is operating close to capacity, for example, then the assumption of a linear cost function may be in error—or may only be a reasonable approximation in the range of activity close to capacity. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Gradable: manual Learning Objective: 05-01 Understand the reasons for estimating fixed and variable costs. Topic: Basic Cost Behavior Patterns |
| 120. | Describe the engineering method of cost estimation. Provide two advantages and two disadvantages associated with the engineering approach to cost estimation.
The engineering method is based on what needs to be performed in order to produce a good or service. One advantage is it can detail each step required to perform the operation; a second advantage is it does not require data from prior activities—it can be used for new activities. One disadvantage is it can be expensive to conduct since it evaluates every activity; a second disadvantage is the estimates are often based on optimal conditions. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Gradable: manual Learning Objective: 05-02 Estimate costs using engineering estimates. Topic: What Methods are Used to Estimate Cost Behavior? |
| 121. | Explain the difference between the engineering method of cost estimation and the account analysis method.
The engineering method is based on what must be done to perform an activity; the account analysis analyzes what was done in the past to perform the activity. Engineering is what should, account analysis is what was. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Gradable: manual Learning Objective: 05-02 Estimate costs using engineering estimates. Learning Objective: 05-03 Estimate costs using account analysis. |
| 122. | When preparing cost estimates for account analysis purposes, should the costs be extracted from the historical accounting records?
Data in the historical accounting records should only be used as long as similar trends are likely to continue in the future. In periods of price instability or technological innovation, use of the historical data without adjustment is likely to result in incorrect estimates. A better alternative is to use the costs that are expected to be incurred during the period for which the cost estimate is prepared. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Gradable: manual Learning Objective: 05-03 Estimate costs using account analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 123. | Describe two advantages and two disadvantages of the high-low method of cost estimation.
Advantages include it only requires two data points and is easy to apply. Disadvantages include most of the information available is ignored and the high and low points may not be representative of typical activity. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 124. | Is it possible to compensate for the effects of price instability when preparing cost estimates using high-low or regression techniques?
Yes, possible ways include: • Adjusting the data to present all costs in some common dollar measure; |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 125. | J.C. Riley owns Riley’s Auto Repair Shop. J.C. is trying to determine whether the company’s advertising program is successful. He has used a spreadsheet program to estimate the relationship between advertising expenditures and sales dollars. Monthly data for the past two years were entered into the program. The regression results indicated the following: Sales dollars = $169, 000 – ($200 × Advertising expenditures) Correlation coefficient = -.864 To J.C., the results imply that advertising is actually reducing sales. Can you help explain to him what might cause the negative relationship between advertising expenditures and sales? This is a frequently encountered problem when applying analytical techniques to certain costs. Quite often the advertising expenditures result in sales being generated in the following month or so. In addition, many companies increase their advertising when sales are declining and cut back on advertising when there is capacity business. A better model might be developed by relating this month’s sales to last month’s advertising. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 126. | Southside Hospital is trying to get a better idea of the costs in its cardiac surgical unit. Unit cost data for supplies, labor, etc. have been collected for a three-year period. After analyzing the data using Excel, the following output was generated, based on 1,500 procedures. Intercept = $2,169, 000 Coefficient on procedures $972 Correlation coefficient = .448 R2 = .189 The controller asks you for advice on whether to rely on this estimate. Based on the output, what would you say? Since the R2 for the equation is only 18.9%, this is very low for this type of regression. The controller might want to consider other methods. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Gradable: manual Learning Objective: 05-04 Estimate costs using statistical analysis. Topic: What Methods are Used to Estimate Cost Behavior? |
| 127. | What are “outliers” and what effect does their presence have when using regression analysis for cost estimation?
An outlier is a data point that lies a significant distance away from the regression line. Since the regression line is computed so the sum of the square of each error (distance between the predicted value and the actual value) is minimized, one point situated at an extreme distance will cause a very large impact on estimating the regression line. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 3 Hard Gradable: manual Learning Objective: 05-06 Identify potential problems with regression data. Topic: What Methods are Used to Estimate Cost Behavior? |
| 128. | Describe the effect on cost estimation of four of the following five problems: 1) missing data, 2) outliers, 3) allocated and discretionary costs, 4) inflation, or 5) mismatched time periods.
Students should choose any 4 of the 5: 1) missing data: Depending on the data, this could have little impact (if the data are representative) or have a very large impact (if the data include extreme values). |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 3 Hard Gradable: manual Learning Objective: 05-06 Identify potential problems with regression data. Topic: How is an Estimation Method Chosen? |
| 129. | Your manager asks you for a cost estimate to open a new retail outlet and says, “I want you to use statistical analysis, so it will be objective because it is based on real data.” How would you respond?
It is certainly possible that for this example a statistical analysis is best. However, it depends on the goal of the analysis. Good data might not be available. For example, the new outlet might be located in an area in which the company has no operations. In addition, historical data might not be representative of the future. It would be best to use a combination of methods and compare the estimates. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 3 Hard Gradable: manual Learning Objective: 05-07 Evaluate the advantages and disadvantages of alternative cost estimation methods. Topic: How is an Estimation Method Chosen? |
| 130. | Fast-food restaurants, like Taco Bell and McDonalds are known for high employee turnover, high quality, and low costs. Using your knowledge of the learning phenomenon, how do these fast-food chains get high quality and low costs when they have so much employee turnover?
These chains use standardized techniques and process that are able to transmit information to employees effectively so that they can learn quickly and learn on the job. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 3 Hard Gradable: manual Learning Objective: 05-09 (Appendix B) Understand the mathematical relationship describing the learning phenomenon. Topic: Learning Phenomenon |
| 131. | Assume that as part of their recent merger, Dell and EMC are perfecting a new device that will access and coordinate the Internet of Things. The new company is interested in estimating the impact of learning on the cost of producing this new device and plan to use data from previous products to estimate the learning parameter. What are the advantages of doing this? What are the disadvantages?
Data from previous products, which are likely to be similar, provide information about how learning might affect the cost of the new product. The disadvantage is that the products are different and these differences might lead to learning rates that are different and, as a result, cost estimates that are not realistic. Also, since Dell is primarily a hardware company and EMC primarily works with digital or cloud-based solutions, the learning curve of these two different environments are very different in functionality and may result in unrealistic results. |
| AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 3 Hard Gradable: manual Learning Objective: 05-09 (Appendix B) Understand the mathematical relationship describing the learning phenomenon. Topic: Learning Phenomenon |
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
