Deck 10: Analysis of Cost Behaviour

Question 1

Compute the estimated costs for each of the following equations assuming the following costs for July:

In addition, state whether each is for a variable, fixed, or mixed cost.
a. Total estimated costs = intercept
b. Total estimated costs = constant
c. Total estimated costs = constant + (slope × cost driver)
d. Total estimated costs = slope coefficient × cost driver
In addition, state whether each is for a variable, fixed, or mixed cost.

Answer 1

a. fixed, $80,000
b. fixed, $80,000
c. mixed, $80,000 + ($6 × 2,000) = $92,000
d. variable, $6 × 2,000 = $12,000

Question 2

Compute the estimated costs for each of the following equations, assuming the following costs for July:

In addition, state whether each is for a variable, fixed, or mixed cost.
a. Total estimated costs = intercept
b. Total estimated costs = constant
c. Total estimated costs = constant + (slope × cost driver)
d. Total estimated costs = slope coefficient × cost driver

Answer 2

a. fixed, $40,000
b. fixed, $40,000
c. mixed, $40,000 + ($6 × 1,000) = $46,000
d. variable, $6 × 1,000 = $6,000

Question 3

Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.
a. Direct manufacturing labour is $20 per hour.
b. Direct materials cost $8.00 per cubic metre.
c. Utilities have a minimum charge of $2,000 plus a charge of $0.05 per kilowatt hour.
d. Factory supplies average $10 per day plus $1.00 for each machine-hour per day.
e. Total manufacturing amortization includes $5,000 for straight-line plant amortization plus machinery amortization of $100 for each day operated.

Answer 3

a. y = $20X
b. y = $8X
c. y = $2,000 + $0.05X
d. y = $10 + $1X
e. y = $5,000 + $100X

Question 4

Use the information below to answer the following question(s).

Raymaster is a small computer software company which uses the account analysis method and has hired you to perform some management advisory services. The company sold 2,500 high quality payroll programs last year.



-What is the total cost per unit sold?

A) $240.00
B) $288.00
C) $358.40
D) $362.40
E) $462.40

Question 5

What is the predicted indirect manufacturing labour cost if 160 machine-hours are budgeted and 170 are actually worked, assuming the estimated cost function is y = $81.04 + 5.32x?

A) $985.44
B) $932.24
C) $904.40
D) $851.20
E) $81.04

Question 6

The cost of the personnel department at the Miller Company has always been charged to the production departments based upon number of employees. Recently, opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned. Total personnel department costs are $120,000.

Required:
Using the above data, prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used is:
a. number of employees.
b. the number of new hires.
c. Which cost estimation method is being used by Miller Company?

Question 7

At the Christopher Company, the cost of the library and information centre has always been charged to the various departments based upon the number of employees. Recently, opinions gathered from the department managers indicated that the number of engineers might also be a predictor of personnel costs to be assigned. Total library and information costs are $150,000.

Required:
Using the above data, prepare a report that contrasts the different amounts of the library and information centre cost that would be allocated to each of the departments if the cost driver used is:
a. number of employees.
b. the number of engineers.
c. Which cost estimation method is being used by Christopher Company?

Question 8

Use the information below to answer the following question(s).
Presented below is the production data for the last six months of the year for the mixed costs incurred by Wagner Company.


-Using the high-low method, the cost function would be stated as

A) y = $2,200 + $2.80x.
B) y = $17,816 + $0.36x.
C) y = $536 + $3.06x.
D) y = $24,450 + $0.33x.
E) y = $39,250 + $0.33x.

Question 9

Use the information below to answer the following question(s).
Presented below is the production data for the last six months of the year for the mixed costs incurred by Wagner Company.


-The total cost at an operating level of 10,000 units would be

A) $31,136.
B) $30,200.
C) $21,416.
D) $42,550.
E) $46,625.

Question 10

Use the information below to answer the following question(s).
The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable. Skip Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.


-The cost function would be stated as

A) y = $13,386 + $0.46x.
B) y = $10,680 + $0.38x.
C) y = $5,056 + $2.16x.
D) y = $1,800 + $2.16x.
E) y = $1,800 + $2.60x.

Question 11

Use the information below to answer the following question(s).
The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable. Skip Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.


-The total cost at an operating level of 2,850 hours would be

A) $19,210.
B) $11,763.
C) $14,697.
D) $11,212.
E) $9,210.

Question 12

Use the information below to answer the following question(s).
The Monroe Company uses the high-low method to estimate the cost function. The information for the current year is provided below.


-What is Monroe Company's slope coefficient per machine hour?

A) $26.91
B) $18.00
C) $16.67
D) $10.00
E) $8.00

Question 13

Use the information below to answer the following question(s).
The Monroe Company uses the high-low method to estimate the cost function. The information for the current year is provided below.


-What is the constant for the estimating cost equation?

A) $2,080
B) $2,960
C) $3,970
D) $4,000
E) $8,000

Question 14

Use the information below to answer the following question(s).
The Monroe Company uses the high-low method to estimate the cost function. The information for the current year is provided below.


-What is the estimate of Monroe's cost function when 200 machine hours are used?

A) $1,840.00
B) $1,997.50
C) $2,280.00
D) $3,333.33
E) $3,680.00

Question 15

Use the information below to answer the following question(s).
At the high point of the relevant range, labour hours at Bradco Restoration were 10,000 and wages were $22,500. At the low point of the relevant range, labour hours were 7,500 and wages were $17,500.

-Using the high-low method determine the slope coefficient per labour hour at Bradco Restoration?

A) $5.25
B) $4.00
C) $2.00
D) $0.50
E) $0.25

Question 16

Use the information below to answer the following question(s).
At the high point of the relevant range, labour hours at Bradco Restoration were 10,000 and wages were $22,500. At the low point of the relevant range, labour hours were 7,500 and wages were $17,500.

-What is the high-low estimate of the labour costs at Bradco Restoration when 8,000 hours are used?

A) $21,500
B) $18,500
C) $17,750
D) $17,250
E) $17,125

Question 17

Answer the following question(s) using the information below.
The Taranto Company uses the high-low method to estimate it's cost function. The information for the current year is provided below:


-What is the slope coefficient per machine-hour?

A) $125.00
B) $12.50
C) $10.00
D) $100.00
E) $0.50

Question 18

Use the information below to answer the following question(s).
The Barnett Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Barnett Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.
?

-What is the cost function derived from using the high-low method?

A) y = $43,191 + $0.19x
B) y = $4,875 + $4.28x
C) y = $41,900 + $0.23x
D) y = $2,430 + $4.28x
E) y = -$4,875 + $5.25x

Question 19

The managers of the production department have decided to use the production levels of 2013 and 2016 as examples of the highest and lowest years of operating levels. During 2013 the department used 280,000 litres of chemicals and during 2016 it used 240,000 litres. The department's costs for 2013 were $460,000, but only $400,000 in 2016.
Required:
Using the high-low method determine the cost estimating equation for the department if litres of direct material are used as the cost driver?

Question 20

A cost analyst collected the following information for the Machining Department:
Observation Machine-hours Total Operating Costs

Required:
a. Determine the estimating cost function with machine-hours as the cost driver using the high-low method.
b. If December's estimated machine-hours total 8,400, what is the estimated cost of the Machining Department?

Question 21

Birch Canvas and Tarp manufactures canvas products in a highly automated assembly plant in Edmonton, Alberta. Their automated system is in its first year of operation, and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes. For the first six months of operations the following data were collected:

Required:
a. Compute a cost estimating equation for each independent variable (machine-hours and kilowatt-hours) using the high-low method.
b. For July the company ran the machines for 1,600 hours and used 2,075,000 kilowatt hours of power. The overhead costs totalled $95,000. Which driver was the best predictor for July?

Question 22

Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Windsor, Ontario. The automated system is in its first year of operation and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes. For the first six months of operations, the following data were collected:

Required:
a. Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.
b. Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost driver.
c. For July, the company ran the machines for 3,150 hours and used 4,180,000 kilowatt-hours of power. The overhead costs totaled $114,000. Which cost driver was the best predictor for July?

Question 23

Wimmer's Storage ran its freezer in February, a slow month, for 360 hours for a total cost of $57,600. In July, a peak month, the freezer ran for 720 hours for a total cost of $82,080.
Required:
a. Using the high-low method, determine the overhead cost equation for the department if hours of freezer use are used as the cost driver?
b. What is the estimated total cost at an operating level of 500 hours?

Question 24

The managers of the production department have decided to use the production levels of 2014 and 2016 as examples of the highest and lowest years of operating levels. Data for those years are as follows:

Required:
Using the high-low method, determine the overhead cost equation for the department if litres of chemicals are used as the cost driver?

Question 25

The annual capacity of a machine is 12,000 hours, with the balance being taken for routine maintenance. It takes 10 hours to process one job (each job = 1 batch),. Altogether, there are seven employees who operate the machine at different times. Orders for the first six months of the year, which are typical, have averaged 50 jobs per month. The company expects 300 orders over the next six months.
Which of the following is TRUE?

A) Expected capacity utilization = 700 batches.
B) Expected capacity utilization = 650 batches.
C) Expected capacity utilization = 600 batches.
D) Average waiting time is not relevant when expected capacity utilization is less than capacity.
E) Waiting time for at least one order will be nil.

Question 26

Quick Shop Printing has two workstations, cutting and pasting. The cutting station is limited by the speed of operating the cutting machine. Pasting is limited by the speed of the workers. Pasting normally waits on work from cutting. Each department currently works an eight-hour day.
The company is considering having cutting begin work two hours earlier than pasting each day, the two departments would then finish their work at the same time. Not only does this eliminate the bottleneck, but it increases finished units produced each day by 80 units. All units produced can be sold even though the change increases inventory stock by 10 percent from 200 units. The cost of operating the cutting department two more hours each day is $800. The contribution margin of the finished products is $3 each. Inventory carrying costs are $0.20 per unit per day.
What is the change in the daily contribution margin if the change is made?

A) $(396)
B) $(564)
C) $240
D) $236
E) $(604)

Question 27

Brown Laundry has a variable demand. The daily demand ranges from 100 to 140 customers a day with an average of 5 items. The average daily demand is 110 customers. The laundry operates 10 hours a day. Each order takes approximately 5 minutes.
Required:
a. What is the average customer waiting time in minutes?
b. What is the cycle time for an order?
c. The manager has decided that the waiting time is too long and has increased the work day to 11 hours. What is the waiting time now? Will the customers be any happier?

Question 28

Canevil Unlimited makes small motorcycles. The monthly demand ranges from 80 to 100 motorcycles. The average demand is 92 motorcycles. The plant operates 300 hours a month. Each cycle takes approximately 1.5 hours.
If the company adds a new line of scooters, initial demand will be 20 per month. Each scooter will take 1 hour to make. To offset approaching production capacity, expanding the assembly line is possible. This will decrease manufacturing time for all products by 20 percent. However, this will increase the costs of cycles from $400 to $500 and scooters from $200 to $240. The change will also cause increases in prices from $700 to $750 for cycles and from $450 to $500 for scooters.
Required:
a. What is the average waiting time for cycles if they are the only item manufactured?
b. What is the average waiting time if both cycles and scooters are produced and the assembly line is not enlarged?
c. What is the average waiting time if both cycles and scooters are produced and the assembly line is enlarged?
d. What is the expected monthly margin without scooters if the company sells all 92 cycles it manufactures?
e. What are the expected monthly contribution margins if scooters are made with the current assembly line and with the new assembly line? Assume average sales and that sales equal production.
f. What action do you recommend?

Question 29

Brix, Inc. prepares frozen food for fast-food restaurants. It has two workstations, cooking and assembly. The cooking station is limited by the cooking time of the food. Assembly is limited by the speed of the workers. Assembly normally waits on food from cooking. Because the demand has increased in recent months to 2,800 dozen units, management is considering adding another cook station or else having the cooks start to work earlier. The monthly cost of operating the cooking station one more hour each day is $2,400. The cost of adding another cook station would add an average of $10 per hour. The current operating hours total eight hours a day, 22 days a month. The contribution margin of the finished products is currently $8 per dozen. Inventory carrying costs average $2.00 per dozen per month. Either the extra hour or the new cook station would increase production by 20 dozen a day with a long-run increase of 80 dozen units in finished goods inventory to 280 dozen.
Required:
a. What is the total production per month if the change is made?
b. What is the increase in the expected monthly product contribution for each of the possible changes? Assume long-run production equals sales.

Question 30

Sof-T, Inc. manufactures foam products for upholstery companies. It has two workstations, mixing/heating and cutting/assembly. The mixing/heating station is limited by the capacity of the equipment. Cutting/assembly is limited by the speed of the cutting machine workers. Cutting/assembly normally lags behind mixing/heating. Because the demand has increased in recent months, management is considering adding another person to cutting/assembly. This would increase the department's costs by $4,000 a month. If the person is moved from mixing/heating, that department's cost would decline by $3,000. By keeping mixing/heating labourers the same, the department can increase production on-call by 10 percent. Current idle time in mixing/heating averages one-half person a day for a net cost of $1,400 a month.
Required:
a. What is the net effect of moving the employee from mixing/heating to cutting/assembly?
b. What is the net effect if a new employee is hired for cutting/assembly?

Question 31

Aunt Lydia's Cookies, Inc., prepares frozen gourmet cookies for shipment to upscale grocery stores as well as mailing to web and catalog customers. The company has two workstations, cooking and distribution. The cooking station is limited by the cooking time of the food. Distribution is limited by the speed of the workers. Distribution normally waits on food from cooking. Because the demand has increased in recent months to 4,000 dozen cookies, management is considering adding another oven in the cooking station or else having the cooks start to work earlier. The monthly cost of operating the cooking station one more hour each day is $1,500. The cost of adding another cooking station would add an average of $8 per hour. The current operating hours total eight hours a day, 24 days a month. The contribution margin of the finished products is currently $2 per dozen. Inventory carrying costs average $0.50 per dozen per month. Either the extra hour or the new cooking station would increase production by 50 dozen a day, with a long-run increase of 100 dozen units in finished goods inventory to 500 dozen.
Required:
a. What is the total production per month if the change is made?
b. What is the increase in the expected monthly product contribution for each of the possible changes? Assume long-run production equals sales.
c. What course of action would you recommend?

Question 32

Bank of Bowmanville has variable demand for its counter services. The daily demand ranges from 200 to 250 customers a day and the average banking transaction takes 6 minutes. The average daily demand is 228 customers. The bank currently has 5 staff members serving the counter and operates 7 hours a day.
Required:
a. What is the average customer waiting time in minutes?
b. In an effort to reduce costs, the bank is considering eliminating one of its counter services staff and having a manager fill in during two hours of the day. What would be the effect of this change on wait time? What might the customers' reaction be?

Question 33

Carl Clarkson and Lenny Lenid have been assigned to review the costs of quality at the Sprotton Chemicals Ltd. for the month of September. All amounts are in thousands (000's).
Some information from a competitor, Sheltonville Industries, has been leaked. You learn that Sheltonville's costs of quality (as a percentage of total costs of quality) is 15% on external failure, 20% on internal failure, 35% on appraisal and the rest on prevention.
Required:
a. Prepare a cost of quality report for September for the Sprotton Chemicals including calculations of each cost category as a percentage of total costs of quality.
b. Compare Sprotton's approach to quality management to Sheltonville's. Comment on your findings. (What are the implications of the differences?)

Question 34

Tri-State Manufacturing expects to spend $800,000 in 2016 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $80,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $120,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.
Internal failure costs average $160 per failed unit of finished goods. During 2011, 5% of all completed items had to be reworked. External failure costs average $400 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
Required:
a. What is the net effect on appraisal costs for 2016, assuming the new receiving method is implemented and that 800,000 material units are received?
b. How much will internal failure costs change, assuming 800,000 units of materials are received and that the new receiving method reduces the amount of UNACCEPTABLE product units in the manufacturing process by 10%?

Question 35

LaCrosse Products has a budget of $900,000 in 2016 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,000 in variable costs. The new method will require $40,000 in training costs and $100,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.
Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.
Required:
a. What is the net change in the budget of prevention costs if the procedures are automated in 2016? Will management agree with the changes?
b. How much will internal failure costs change if the internal product failures are reduced by 1/3 with the new procedures?
c. How much do external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories.

Question 36

The Brick Shirt House is concerned about its declining sales, especially the reduction in the number of customers. For the last two years its shirts have won industry awards for high quality and trend-setting styles. At the latest executive managers' meeting everyone was blaming everyone else for the decline. After much discussion, and the presenting of some fact-finding information, it was determined that sales relationships were the cause of most of the problems.
Required:What may be some of the causes and how can the causes be detected if product quality is not an issue?

Question 37

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure.

-Disposal of spoiled work in process

A) External failure
B) Internal failure
C) Appraisal
D) Prevention

Question 38

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure.

-Expediting work to meet delivery schedule

A) External failure
B) Internal failure
C) Appraisal
D) Prevention

Question 39

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure.

-Field testing

A) External failure
B) Internal failure
C) Appraisal
D) Prevention

Question 40

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure.

-Quality training

A) External failure
B) Internal failure
C) Appraisal
D) Prevention

Question 41

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure.

-Rework direct manufacturing labour and overhead

A) External failure
B) Internal failure
C) Appraisal
D) Prevention

Question 42

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure.

-Testing and inspecting of machinery

A) External failure
B) Internal failure
C) Appraisal
D) Prevention

Question 43

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure.

-Testing and inspecting of direct materials

A) External failure
B) Internal failure
C) Appraisal
D) Prevention

Question 44

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure.

-Warranty repairs

A) External failure
B) Internal failure
C) Appraisal
D) Prevention

Question 45

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Analysis of the cause of defects in production

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 46

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Depreciation of test equipment

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 47

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Warranty repairs

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 48

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Lost sales arising from a reputation for poor quality

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 49

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Quality circles

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 50

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Rework direct manufacturing labour and overhead

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 51

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Net cost of spoilage

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 52

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Technical support provided to suppliers

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 53

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Audits of the effectiveness of the quality system

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 54

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Plant utilities in the inspection area

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 55

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

-Reentering data because of keypunch errors

A) Appraisal
B) External failure
C) Internal failure
D) Prevention

Question 56

A better database for estimating cost functions has the following characteristics.

A) Fixed costs are allocated as if they are variable costs.
B) Extreme observations are adjusted or removed.
C) Time periods differ for measuring items included in the dependent variable and the cost driver(s).
D) Homogeneous relationships between individual cost items in the dependent variable pool and cost drivers may not be present.
E) There is no causal, economically plausible relationship between individual cost items in a heterogeneous mixed pool and a single cost driver.

Question 57

Brad Henry has just purchased the film studio of a movie company that specializes in action adventures. He found that the company did not try to estimate the cost of making a movie. Instead it just gave the producer a budget and told him/her to make a movie within budget. Mr. Henry does not like the former movie-budget concept and desires to establish a formal cost estimation system.
Required:
What are some of the potential problems that may be encountered in changing from a budget to a cost estimation movie-making system?

Question 58

The ideal database for estimating cost functions has two characteristics:
1. The database should contain numerous reliably measured observations of the cost driver
(the independent variable) and the related costs (the dependent variable).
2. It includes values for the independent variable over a wide range.
Unfortunately, management accountants rarely have the advantage of working with a database that has both characteristics.
Required:
Following are a list of data problems that may be encountered. Select three, then for each selection describe the describe the cause/effect of the problem and provide a remedy.
1. The time period for measuring the dependent variable does not match the period for measuring the independent variable.
2. Fixed costs are allocated as if they were variable.
3. Data are either unavailable for all observations or not uniformly available.
4. Extreme values of observations, or outliers, occur when recording costs.
5. There is no causal, economically plausible relationship between the individual cost items in a heterogeneous mixed pool and a single cost driver.
6. Inflation affects the dependent variable, the independent variable(s), or both.

Question 59

Pam's Stables used two different independent variables (trainer hours and number of horses) in two different equations to evaluate the cost of training horses. The most recent results of the two regressions are as follows: Trainer's hours:

R² = 0.56
Number of horses:

R² = 0.63
What is the estimated total cost for the coming year if 16,000 trainer hours are incurred and the stable has 400 horses to be trained, based on the best cost driver?

A) $99,929.09
B) $350,756.50
C) $335,313.32
D) $84,233.50
E) $47,238.12

Question 60

Craig's Cola was to manufacture 1,000 cases of cola next week. The accountant provided the following analysis of total manufacturing costs.
R² = 0.82
What is the estimated cost of producing the 1,000 cases of cola?

A) $200,100
B) $72,032
C) $100,200
D) $9,000
E) $91,812

Question 61

Multicollinearity exists when which of the following conditions is present?

A) At least two variables change due to changes in the cost driver.
B) There are at least two cost pools (usually separated for fixed and variable costs).
C) The underlying value of the coefficient can only be explained in relation to dependent variables.
D) There are two or more statistically significant observations of at least two independent variables.
E) Two or more independent variables are highly correlated with each other.

Question 62

The Bhaskara Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows:
What is the linear cost function?

A) y = $4,560 + $2.1876X
B) y = $4,560 + $11.75X
C) y = $21,890 + $4.56X
D) y = $21,890 + $2.1876X
E) y = $21,890 + $11.75X

Question 63

Simple regression differs from multiple regression in that

A) multiple regression uses all available data to estimate the cost function whereas simple regression only uses simple data.
B) simple regression is limited to the use of only the outcome variables and multiple regression can use both outcome and predictor variables.
C) simple regression uses only one predictor variable and multiple regression uses more than one predictor variable.
D) simple regression uses only one outcome variable and multiple regression uses more than one outcome variable.
E) the lease squares technique cannot be used for simple regression whereas it can be used for multiple regression.

Question 64

A paper company manufactures cardboard boxes. Because the efforts of manufacturing are approximately equal between labour and machinery, management is considering other possible cost drivers. By considering different cost drivers, it is anticipated that the estimating process can be improved. The following cost estimating equations with their r, values have been determined for 2015:
‪
Required:
a. Which equation should be selected for the analysis?
b. What are other factors that should be included in the selection of the estimating equation?

Question 65

Arfaei Company manufactures chairs. Because the efforts of manufacturing are approximately equal between labour and machinery, management is considering other possible cost drivers. By considering different cost drivers, it is anticipated that the estimating process can be improved. The following cost estimating equations with their r² values have been determined for 2016:

Required:
a. Which equation should be selected for the analysis?
b. What other factors should be included in the selection of the estimating equation?

Question 66

A Manufacturing Company uses two different independent variables in two different equations to evaluate the cost activities of the packaging department, machine-hours and number of packages. The most recent month's results of the two regressions are as follows:
Machine hours:

r² = 0.29
Number of packages:

r² = 0.61
Required:
a. What are the estimating equations for each cost driver?
b. Which cost driver is best and why?

Question 67

Stow-a-way Luggage Ltd. manufactures luggage for the traveler concerned about excessive airline luggage fees. They have two designs of carry-on luggage. The "Exec"
is targeted to business travelers and the "Companion"
for those on a holiday. The company used simple regression to budget indirect costs of $823,400 based on the following equation: y = $542,400 + $5.62X, where X is 50,000 direct labour hours for a budgeted production of 250,000 units. At the end of the year the company's controller evaluated the actual costs for producing 220,000 units. Using simple regression that actual indirect cost of $810,825; represented by the following equation y = $535,400 + $5.75X for the 47,900 actual direct labour hours.
Required:
a. Determine the rate, efficiency/production-volume variances for the indirect costs.
b. What statistical measure of serial correlation could the controller use to determine if the independence of the residuals is within an acceptable range?

Question 68

Match the description with the appropriate term.

-Measures how large the value of the estimated coefficient is relative to its standard error.

A) specification analysis
B) standard error of the regression
C) Durbin-Watson statistic
D) t-value
E) heteroscedasticity
F) autocorrerlation
G) homoskedasticity
H) goodness of fit
I) economic plausibility
J) constant variance of residuals

Question 69

Match the description with the appropriate term.

-The testing of the assumptions of regression analysis.

A) specification analysis
B) standard error of the regression
C) Durbin-Watson statistic
D) t-value
E) heteroscedasticity
F) autocorrerlation
G) homoskedasticity
H) goodness of fit
I) economic plausibility
J) constant variance of residuals

Question 70

Match the description with the appropriate term.

-An alternative measure to the coefficient of determination (r²).

A) specification analysis
B) standard error of the regression
C) Durbin-Watson statistic
D) t-value
E) heteroscedasticity
F) autocorrerlation
G) homoskedasticity
H) goodness of fit
I) economic plausibility
J) constant variance of residuals

Question 71

Match the description with the appropriate term.

-A criteria used to prevent the indiscriminate inclusion of independent variables that have an acceptable correlation.

A) specification analysis
B) standard error of the regression
C) Durbin-Watson statistic
D) t-value
E) heteroscedasticity
F) autocorrerlation
G) homoskedasticity
H) goodness of fit
I) economic plausibility
J) constant variance of residuals

Question 72

Match the description with the appropriate term.

-Measures the percentage of variation in Y (the dependent variable) explained by X (the independent variable).

A) specification analysis
B) standard error of the regression
C) Durbin-Watson statistic
D) t-value
E) heteroscedasticity
F) autocorrerlation
G) homoskedasticity
H) goodness of fit
I) economic plausibility
J) constant variance of residuals

Question 73

Match the description with the appropriate term.

-The implication that error terms are unaffected by the level of the cost driver.

A) specification analysis
B) standard error of the regression
C) Durbin-Watson statistic
D) t-value
E) heteroscedasticity
F) autocorrerlation
G) homoskedasticity
H) goodness of fit
I) economic plausibility
J) constant variance of residuals

Question 74

Match the description with the appropriate term.

-A constant variance of the residuals.

A) specification analysis
B) standard error of the regression
C) Durbin-Watson statistic
D) t-value
E) heteroscedasticity
F) autocorrerlation
G) homoskedasticity
H) goodness of fit
I) economic plausibility
J) constant variance of residuals

Question 75

Match the description with the appropriate term.

-A systematic pattern in the sequence of residuals.

A) specification analysis
B) standard error of the regression
C) Durbin-Watson statistic
D) t-value
E) heteroscedasticity
F) autocorrerlation
G) homoskedasticity
H) goodness of fit
I) economic plausibility
J) constant variance of residuals

Question 76

Match the description with the appropriate term.

-A measure of the serial correlation in the estimated residuals.

A) specification analysis
B) standard error of the regression
C) Durbin-Watson statistic
D) t-value
E) heteroscedasticity
F) autocorrerlation
G) homoskedasticity
H) goodness of fit
I) economic plausibility
J) constant variance of residuals

Question 77

Each time Maiertree Care hires a new employee it must wait for some period of time before the employee can meet production standards. Management is unsure of the learning curve in its operations but it knows the first job by a new employee averages 60 hours and the second job averages 48 hours. Assume all jobs to be equal in size.
Required:
a. What is the learning curve percentage, assuming the cumulative average-time method?
b. What is the time for a new employee to build 16 units with this learning curve using the cumulative average-time method? Assume the rate of learning factor is -0.1520.

Question 78

Andrew Pallet Co., Inc. manufactures pallets for various manufacturing companies. Each new employee takes 10 hours to make the first pallet and 8 hours to make the second. The manufacturing overhead charge per hour is $80.
Required:
a. What is the learning curve percentage assuming the cumulative average method?
b. What is the time needed to build 8 pallets by a new employee using the cumulative average-time method? Assume the rate of learning factor is -0.1520.
c. What is the time needed to produce the 16th pallet by a new employee using the incremental unit-time method? Assume the rate of learning factor is -0.3219.

Question 79

Harry's Picture manufactures various picture frames. Each new employee takes 5 hours to make the first picture frame and 4 hours to make the second. The manufacturing overhead charge per hour is $20.
Required:
a. What is the learning-curve percentage, assuming the cumulative average method?
b. What is the time needed to build 8 picture frames by a new employee using the cumulative average-time method? Assume the rate of learning factor is -0.1520.
c. What is the time needed to produce the 16th frame by a new employee using the incremental unit-time method? Assume the rate of learning factor is -0.3219.

Question 80

Joe's Copy Centre hires a new employee. Joe knows he has to be patient with the employee until the employee gains enough experience to meet production standards. Joe is unsure of the learning curve in his operation, but he knows the first job by a new employee averages 40 minutes and the second job averages 32 minutes. Assume all jobs to be equal in size.
Required:
a. What is the learning-curve percentage, assuming the cumulative average-time method?
b. What is the time for a new employee to do 32 jobs with this learning curve using the cumulative average-time method? You may use an index of -0.1520.