Deck 5: Cost Estimation

Question 1

In general,the account analysis method focuses on the underlying relationship between cost and activities from the previous period.The identification of the relationship between this relationship (the dependent and independent variable)is key to the analysis.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

A scattergraph is useful for identifying outliers/irrelevant data points.This visual representation gives an indication of unusual or extreme points that are outside the area determined to be the norm.

Question 5

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

Question 6

The account analysis method is more subjective than other cost estimation methods because it relies heavily on the personal judgment and experience of accountants.Different accountants will have different experience and will classify items accordingly.

Question 7

One advantage of the engineering method is that it does not require data from prior periods to estimate cost behavior.The engineering method is based on what needs to be done,not what was done in prior periods.

Question 8

Cost estimates using regression analysis are always more accurate and dependable than cost estimates using the scattergraph methods.Not always.If the data is linear the scattergraph method will give the same results as regression analysis.

Question 9

Because outliers are extreme data points,they can be included in the regression analysis and not significantly affect the results.Outliers will significantly affect the results as they did in the High and Low analysis.

Question 10

One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions.The account analysis method is based on existing circumstances.

Question 11

Cost behavior is the most important characteristic for managerial decision making.This is a fundamental concept.

Question 12

The quality of the cost equation depends on collecting appropriate data.The results obtained are only as good as the data used.If data improves,so will the results.

Question 13

A basic assumption of most cost estimation methods is cost behavior patterns are linear within the relevant range.Most cost estimation models are linear models and assume that the underlying data is linear.

Question 14

The relevant range represents those activity levels for which valid cost relationships have been observed.This is a definition of the term relevant range.

Question 15

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.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.

Question 16

The engineering method of determining cost behavior is particularly useful for new activities or products.This is true because there often is no history to rely on.

Question 17

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

Question 18

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

Question 19

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

Question 20

The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity.As capacity is approached there are changes in the costs such as additional overtime due to scheduling problems.

Question 21

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

A)typically results in a 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 22

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 23

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 24

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.

Question 25

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 26

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 27

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.Linear regression will always give the best line,high-low may give the best line,scattergraph and account analysis rely on judgment.

Question 28

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.

Question 29

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 30

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.

Question 31

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

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

Question 32

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 33

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 34

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 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

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 37

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 38

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 39

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 40

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.

Question 41

The Business School at Eastern 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:

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

Question 42

The Armer 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?

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

Question 43

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 44

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 45

The Business School at Eastern 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:

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

Question 46

The Armer 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?

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

Question 47

The Armer 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)

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

Question 48

The Business School at Eastern 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:

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

Question 49

The Business School at Eastern 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:

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

Question 50

The Business School at Eastern 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 for the regression equation for administrative costs is:

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

Question 51

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 52

The Business School at Eastern 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)

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

Question 53

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 54

The Business School at Eastern 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:

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

Question 55

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.

Question 56

The Armer 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:

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

Question 57

The Armer 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?

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

Question 58

The Business School at Eastern 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)

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

Question 59

The Business School at Eastern 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:

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

Question 60

The Armer 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?

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

Question 61

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 62

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 63

The Business School at Eastern 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:

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

Question 64

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 65

Thul 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:

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

Question 66

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 67

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 68

Thul 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:

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

Question 69

Thul 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:

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

Question 70

Thul 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:

A)Cost = $11.70 × Machine-hours.
B)Cost = $0.93 × Machine-hours.
C)Cost = $5.77 × Machine-hours.
D)Cost = $0.49 × Machine-hours.

Question 71

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 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 4^th unit?

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

Question 73

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 74

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 75

Thul 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:

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

Question 76

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.

Question 77

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 78

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 79

The Business School at Eastern 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:

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

Question 80

Thul 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:

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