Deck 5: Cost Estimation

Question 1

One advantage of the engineering method is that it does not require data from prior periods to estimate cost behavior.

Answer 1

True

Question 2

In general,the use of multiple independent variables increases the proportion of the variation in the dependent variable explained by the cost equation.

Answer 2

True

Question 3

One disadvantage of the high-low method is the highest and lowest points may not be representative of normal operating activities.

Answer 3

True

Question 4

Different cost estimations methods may produce different cost equations,even when using the same set of data.

Question 5

In general,the account analysis method focuses on the underlying relationship between cost and activities from the previous period.

Question 6

In general,accounting records accumulate cost information according to its behavior (i.e.,variable and fixed).

Question 7

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.

Question 8

The relevant range represents those activity levels for which valid cost relationships have been observed.

Question 9

Because outliers are extreme data points,they can be included in the regression analysis and not significantly affect the results.

Question 10

The account analysis method is more subjective than other cost estimation methods because it relies heavily on the personal judgment and experience of accountants.

Question 11

One way to control the effects of a nonlinear relation between total costs and volume is reduce the relevant range.

Question 12

A basic assumption of most cost estimation methods is cost behavior patterns are linear within the relevant range.

Question 13

Cost estimates using regression analysis are always more accurate and dependable than cost estimates using the scattergraph methods.

Question 14

One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions.

Question 15

Cost behavior is the most important characteristic for managerial decision making.

Question 16

The quality of the cost equation depends on collecting appropriate data.

Question 17

In general,cost behavior results are likely to differ between the engineering method and the account analysis method.

Question 18

The engineering method of determining cost behavior is particularly useful for totally new activities or products.

Question 19

A scattergraph is useful for identifying outliers/irrelevant data points.

Question 20

The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity.

Question 21

The coefficient of correlation is

A)the range of values over which the probability may be estimated based upon the regression equation results.
B)the proportion of the total variance in the dependent variable explained by the independent variable.
C)the measure of variability of the actual observations from the predicting (forecasting)equation line.
D)the relative degree that changes in one variable can be used to estimate changes in another variable.

Question 22

In the standard regression equation of y = a + bx,the letter b is best described as the

A)independent variable.
B)dependent variable.
C)slope of the equation.
D)intercept of the equation.

Question 23

Mount 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?

A)$1,700
B)$3,000
C)$5,600
D)$8,000

Question 24

In the cost equation TC = F + VX,X is best described as the:

A)costs that do not vary with changes in the activity level.
B)costs that do vary with changes in the activity level.
C)total cost estimate at a particular activity level.
D)activity level used to estimate the total cost.

Question 25

In the standard regression equation of y = a + bx,the letter a is best described as the

A)independent variable.
B)dependent variable.
C)slope of the equation.
D)intercept of the equation.

Question 26

Which of the following cost estimation methods finds the fixed portion of a mixed cost before calculating the variable portion?

A)Scattergraph.
B)High-low method.
C)Account analysis.
D)Linear regression.
E)Engineering approach.

Question 27

In the cost equation TC = F + VX,V is best described as the:

A)costs that do not vary with changes in the activity level.
B)intercept of the cost equation.
C)slope of the cost equation.
D)activity level used to estimate the dependent variable.

Question 28

The Shapely 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?

A)$20.00
B)$16.00
C)$14.29
D)$10.00

Question 29

In the standard regression equation of y = a + bx,the letter y is best described as the

A)independent variable.
B)dependent variable.
C)slope of the equation.
D)intercept of the equation.

Question 30

Given actual amounts of a semivariable cost for various levels of output,the method that will always give the most reliable measure of the fixed and variable components is the

A)high-low method.
B)linear regression method.
C)scattergraph method.
D)account analysis method.

Question 31

Which of the following costs would most likely be classified as variable assuming the account analysis method is used to determine cost behaviors?

A)Indirect materials.
B)Supervisory salaries.
C)Equipment maintenance.
D)Annual Christmas party.
E)Building occupancy costs.

Question 32

The term "relevant range" as used in cost accounting means the range over which:

A)relevant costs are incurred.
B)costs may fluctuate.
C)cost relationships are valid.
D)cost data is available.

Question 33

Engineering cost estimates are usually based on operating conditions that are considered:

A)optimal.
B)practical.
C)attainable.
D)historical.
E)realistic.

Question 34

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?

A)scattergraph
B)high-low
C)account analysis
D)regression analysis
E)engineering estimates

Question 35

Which of the following statements is (are)true regarding cost behaviors? (A)In general,accounting records accumulate cost information according to its behavior.
(B)Cost behaviors are the most important consideration in managerial decision making.

A)only A is true.
B)only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 36

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)engineering estimates
B)regression analysis
C)account analysis
D)scattergraph
E)high-low

Question 37

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.
(B)The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity.

A)only A is true.
B)only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 38

A disadvantage of the high-low method of cost analysis is that it

A)typically results in totally inaccurate cost formula.
B)is too time consuming to apply.
C)uses only two data points,which may not be representative of normal conditions.
D)relies totally on the judgment of the person performing the cost analysis.

Question 39

Given the following information,compute the total number of units for the period.

A)360
B)432
C)640
D)840

Question 40

Which of the following cost estimation methods finds the variable portion of a mixed cost before calculating the fixed portion?

A)Scattergraph.
B)High-low method.
C)Account analysis.
D)Linear regression.
E)Engineering approach.

Question 41

Based on the results of the high-low analysis,the estimate of administrative costs in a month with 1,000 credit hours would be:

A)$183,774.
B)$199,969.
C)$201,210.
D)$198,808.

Question 42

The Wiscow 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?

A)$9,730
B)$9,606
C)$9,106
D)$8,788

Question 43

If the controller uses regression analysis to estimate costs,the estimate of the fixed portion of administrative salaries is:

A)Cost = $103.56.
B)Cost = $12,521.26.
C)Cost = $19,943.58.
D)Cost = $96,409.42.

Question 44

What would be the cost equation if the high-low method is used?

A)Maintenance Costs = 9.00 $\times$ Hours of Activity
B)Maintenance Costs = 3,600 + 400 $\times$ Hours of Activity
C)Maintenance Costs = 570 + 7.50 $\times$ Hours of Activity
D)Maintenance Costs = 34.469 + .99724 $\times$ Hours of Activity

Question 45

What would be the cost equation if regression analysis is used?

A)Maintenance Costs = 7.2884 + 684.65 $\times$ Hours of Activity
B)Maintenance Costs = 684.65 + 49.515 $\times$ Hours of Activity
C)Maintenance Costs = 684.65 + 7.2884 $\times$ Hours of Activity
D)Maintenance Costs = 34.469 + .99724 $\times$ Hours of Activity

Question 46

Based upon the data derived from the regression analysis,420 maintenance hours in a month would mean the maintenance costs would be budgeted at

A)$3,797.
B)$3,780.
C)$3,746.
D)$3,600.
E)$3,461.

Question 47

What is the variable cost per hour using the high-low method to estimate the cost equation?

A)$9.00.
B)$7.50.
C)$0.1333.
D)$0.1111.

Question 48

If the controller uses the high-low method to estimate costs,the cost equation for administrative salaries is:

A)Cost = $96,409.42 + $103.56 $\times$ Credit-hours.
B)Cost = $69,474.40 + $114 30 $\times$ Credit-hours.
C)Cost = $201.21 $\times$ Credit-hours.
D)Cost = $198,808.

Question 49

The controller of Joy Co has requested a quick estimate of the manufacturing supplies needed for the Morton 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.Joy 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)

A)$681,500.
B)$688,750.
C)$749,180.
D)$752,060.
E)$759,310.

Question 50

The Chambers 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?

A)$2,78
B)$2.86
C)$3.10
D)$3.38

Question 51

If the controller uses regression analysis to estimate costs,the estimate of the variable portion of administrative salaries is:

A)Cost =$8.63 $\times$ Credit-hours.
B)Cost =$0.87 $\times$ Credit-hours.
C)Cost =$103.56 $\times$ Credit-hours.
D)Cost = $11.99 $\times$ Credit-hours.

Question 52

Hagler's Toupees has the following machine hours and production costs for the last six months of last year: If Hagler expects to incur 14,000 machine hours in January,what will be the estimated total production cost using the high-low method?

A)$8,750.00
B)$11,142.50
C)$22,400.00
D)$10,889.10

Question 53

The cost accountants at the Doering 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)

A)$10,534
B)$9,882
C)$9,230
D)$8,617

Question 54

The Shapely Company uses the high-low method to determine its cost equation.The following information was gathered for the past year: If Shapely expects to use 10,000 machine hours next month,what are the estimated direct labor costs?

A)$160,000
B)$180,000
C)$175,000
D)$150,000

Question 55

Based on the results of the regression analysis,the estimate of administrative costs in a month with 1,000 credit hours would be:

A)$198,808.
B)$201,000.
C)$199,969.
D)$96,409.

Question 56

If the controller uses the high-low method to estimate costs,the fixed cost portion of the cost equation for administrative salaries is:

A)$198,808.
B)$69,474.40.
C)$96,409.42.
D)$19,943.58.

Question 57

If the controller uses the high-low method to estimate costs,the variable cost per credit hour is:

A)$82.33
B)$103.56
C)$114.30
D)$201.22

Question 58

Using the high-low method to estimate cost behavior,420 maintenance hours in a month would mean the maintenance costs would be budgeted at

A)$3,150.
B)$3,600.
C)$3,720.
D)$3,780.
E)$3,461.

Question 59

If the controller uses regression analysis to estimate costs,the cost equation for administrative salaries is:

A)Cost = $19,943.58 + $13.00 $\times$ Credit-hours.
B)Cost = $69,474.40 + $114 30 $\times$ Credit-hours.
C)Cost = $96,409.42 + $103.56 $\times$ Credit-hours.
D)Cost = $12,521.26 + $11.99 $\times$ Credit-hours.

Question 60

What is the fixed cost per month using the high-low method to estimate the cost equation?

A)$570.
B)$600.
C)$1,140.
D)$2,250.

Question 61

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)

A)Scattergraph method
B)Simple regression
C)High and low point method
D)Multiple regression
E)Management analysis of data

Question 62

If the controller uses the high-low method to estimate costs,the cost equation for electricity cost is:

A)Cost = $3,726.88 + $5.77 $\times$ Machine-hours.
B)Cost = $1,625.00 + $6.25 $\times$ Machine-hours.
C)Cost = $6.90 $\times$ Machine-hours.
D)Cost = $22,825.

Question 63

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:

A)$198,808.
B)$20,712.
C)$117,121.
D)$40,242.

Question 64

Based on the results of the high-low analysis,the estimate of electricity costs in a month with 2,200 machine hours would be:

A)$15,375
B)$22,825
C)$15,180
D)$16,427

Question 65

In the learning curve equation Y = aX^b,the "b" term represents

A)the labor time required to produce the first unit
B)the labor time required to produce the last single unit
C)the cumulative number of units
D)the index of learning

Question 66

Which of the following is a common assumption of cost estimation?

A)Cost behavior depends on many cost drivers.
B)Cost behavior patterns are nonlinear outside of the relevant range.
C)Cost behavior patterns are linear within the relevant range.
D)Costs are curvilinear.

Question 67

The percent of the total variance that can be explained by the regression is:

A)93.3%.
B)87.1%.
C)85.9%.
D)96.6%.

Question 68

In the learning curve equation Y = aX^b,the "a" term represents

A)the labor time required to produce the first unit
B)the labor time required to produce the last single unit
C)the cumulative number of units
D)the index of learning

Question 69

Which of the following is the difference between variable costs and fixed costs: (CMA adapted)

A)variable costs per unit fluctuate and fixed costs per unit remain constant
B)variable costs per unit are fixed over the relevant range and fixed costs per unit are variable
C)total variable costs are variable over the relevant range and fixed in the long term,while fixed costs never change
D)variable costs per unit change in varying increments,while fixed costs per unit change in equal units
E)total variable costs can be varied by management,while fixed costs are uncontrollable

Question 70

If the controller uses the high-low method to estimate costs,the variable cost per machine hour is:

A)$6.25
B)$6.90
C)$5.77
D)$11.70

Question 71

A cost driver is defined as: (CMA adapted)

A)the largest cost in a manufacturing process
B)a fixed cost that cannot be avoided
C)the significant factor in developing a new product
D)an indirect cost that cannot be traced to a particular cost objective but is essential to the business
E)a causal factor that increases the total cost of a cost objective

Question 72

Hawkins 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 8^th unit?

A)74.00 hours
B)57.80 hours
C)56.00 hours
D)49.13 hours

Question 73

If the controller uses regression analysis to estimate costs,the cost equation for electricity cost is:

A)Cost = $1,425.18 + $12.00 $\times$ Machine-hours.
B)Cost = $3,726.88 + $1,682.82 $\times$ Machine-hours.
C)Cost = $1,682.82 + $0.49 $\times$ Machine-hours.
D)Cost = $3,726.88 + $5.77 $\times$ Machine-hours.

Question 74

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)

A)economic order quantity analysis
B)probability analysis
C)correlation analysis
D)multiple regression analysis

Question 75

In the learning curve equation Y = aX^b,the X term represents

A)the labor time required to produce the first unit
B)the labor time required to produce the last single unit
C)the cumulative number of units
D)the index of learning

Question 76

The correlation coefficient for the regression equation for administrative costs is:

A)0.933.
B)0.871.
C)0.859.
D)

Question 77

In the learning curve equation Y = aX^b,the Y term represents

A)the labor time required to produce the first unit
B)the labor time required to produce the last single unit
C)the cumulative number of units
D)the index of learning

Question 78

Hawkins 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 4^th unit?

A)74.00 hours
B)57.80 hours
C)56.00 hours
D)54.40 hours

Question 79

Which of the following statements regarding the learning phenomenon is true?

A)The more units that are produced,the greater the average time to produce a single unit.
B)The relationship between number of units produced and the marginal time to produce the latest unit is linear.
C)Total labor cost is a linear function of the total units produced.
D)As production doubles,the time to produce the latest unit decreases.

Question 80

If the controller uses the high-low method to estimate costs,the fixed cost portion of the cost equation for electricity cost is:

A)$3,726.88
B)$1,425.18
C)$1,625.00
D)$22,825.00