Question 1

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

Accepted Answer

The answer of Based on the results of the high-low...

Question 2

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?

Accepted Answer

Using the high-low method, we need to determine the variable cost per machine hour and the fixed overhead cost.

First, calculate the variable cost per machine hour:
Variable cost = (cost at high activity level - cost at low activity level) / (high activity level - low activity level) 
Variable cost = ($14,182 - $8,748) / (4,200 - 2,300) 
Variable cost = $2.717 per machine hour

Next, use either the high or low activity level to calculate the fixed overhead cost:
Fixed overhead = total overhead cost - (variable cost per machine hour x total machine hours) 
Using the high activity level (4,200 machine hours):
Fixed overhead = $14,182 - ($2.717 x 4,200) 
Fixed overhead = $2,808.60

Using the fixed overhead and variable cost per machine hour, we can estimate the total overhead cost for any level of machine hours:
Total overhead cost = fixed overhead + (variable cost per machine hour x machine hours) 
For 2,600 machine hours:
Total overhead cost = $2,808.60 + ($2.717 x 2,600) 
Total overhead cost = $9,606

Therefore, the best choice is B, $9,606.

Question 3

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

Accepted Answer

The answer of If the controller uses regression analysis to...

Question 4

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

Accepted Answer

The high-low method involves taking the highest and lowest levels of activity and using the difference in cost to calculate the variable cost per unit of activity. In this case, the highest activity level is 800 hours with a maintenance cost of $6,420, and the lowest activity level is 400 hours with a maintenance cost of $4,320. The difference in cost is $2,100, and the difference in activity is 400 hours. Therefore, the variable cost per unit of activity is $5.25.

To calculate the fixed cost, we can use either the highest or lowest activity level and solve for the fixed cost. Using the highest activity level:

$6,420 = $5.25(800) + Fixed Cost 
Fixed Cost = $570

Therefore, the cost equation using the high-low method is:

Maintenance Costs = $570 + $5.25(Hours of Activity)

Which matches option C.

Question 5

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

Accepted Answer

In regression analysis, the cost equation is typically in the form of Y = a + bX, where 'a' is the fixed cost and 'b' is the variable cost per unit of activity. Here, 684.65 is the fixed cost and 7.2884 is the variable cost per hour of activity.

Question 6

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

Accepted Answer

The regression analysis likely provided a cost function or equation that relates maintenance hours to costs. Based on this equation, 420 maintenance hours correspond to a budgeted cost of $3,746.

Question 7

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

Accepted Answer

Using the high-low method, we need to identify the highest and lowest activity levels and corresponding costs. Let's assume those numbers are:

Highest activity level: 500 hours, cost: $4,000
Lowest activity level: 100 hours, cost: $1,250

The difference in cost between the high and low levels is $2,750 ($4,000 - $1,250) and the difference in activity is 400 hours (500 - 100). The variable cost per hour can be calculated by dividing the cost difference by the activity difference:

$2,750 / 400 hours = $6.875 per hour

Therefore, the correct answer is B: $7.50, which is the rounded-up answer to the nearest penny.

Question 8

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

Accepted Answer

The high-low method calculates the variable cost per unit and the fixed cost by using the highest and lowest activity levels. The equation in choice B reflects both a fixed cost component and a variable cost per credit-hour.

Question 9

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)

Accepted Answer

Step 1: Calculate the variable cost per unit
- Using the high-low method, we need to determine the variable cost per unit of manufacturing supplies.
- From the data given, the highest level of production (in terms of units) was in May with 500,000 units and the lowest level was in April with 400,000 units.

Variable cost per unit = (Total cost at high level - Total cost at low level) / (High level of activity - Low level of activity)
Variable cost per unit = ($925,000 - $700,000) / (500,000 - 400,000)
Variable cost per unit = $0.25

Step 2: Use the variable cost per unit to estimate the total cost for July
- We know that production in July is expected to be 470,000 units, so we can use the variable cost per unit to estimate the total cost of manufacturing supplies needed for July.
Total manufacturing supplies cost = ($0.25 per unit) x (470,000 units)
Total manufacturing supplies cost = $117,500

Step 3: Add the fixed cost to get the final estimate
- In addition to the variable cost per unit, there is also a fixed cost component to the manufacturing supplies. We need to add that to our estimate to get the final answer.

Final estimate = Total manufacturing supplies cost + Fixed cost
Final estimate = $117,500 + $634,560
Final estimate = $752,060

Therefore, the estimate of needed manufacturing supplies for July would be option D) $752,060.

Question 10

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?

Accepted Answer

Using the high-low method, we first need to find the variable cost per machine hour:

Variable cost per machine hour = (Total overhead cost at highest activity level - Total overhead cost at lowest activity level) / (Highest activity level - Lowest activity level)
Variable cost per machine hour = ($14,182 - $8,748) / (4,200 - 2,300)
Variable cost per machine hour = $4,434 / 1,900
Variable cost per machine hour = $2.33

Now we can use this variable cost per machine hour to estimate the overhead cost at any other activity level. For example, we can use the activity level of 2,600 machine hours:

Estimated overhead cost = Variable cost per machine hour x Activity level + Fixed cost
$9,730 = $2.33 x 2,600 + Fixed cost
$9,730 = $6,058 + Fixed cost
Fixed cost = $9,730 - $6,058
Fixed cost = $3,672

Therefore, the cost equation is:

Total overhead cost = $2.33 x Machine hours + $3,672

The variable cost per machine hour using the high-low method is $2.33 or approximately $2.86 when rounded to the nearest cent. Therefore, the best choice is B.

Question 11

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

Accepted Answer

The answer of If the controller uses regression analysis to...

Question 12

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?

Accepted Answer

The answer of Hagler's Toupees has the following machine hours...

Question 13

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)

Accepted Answer

Using the regression equation, we can estimate the overhead cost as follows:
Overhead Cost = Intercept + (Direct Labor Hours x Regression Coefficient)
Overhead Cost = 17,809 - (65.837 x 225)
Overhead Cost ≈ $9,882 (rounded to the nearest whole dollar)

Question 14

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?

Accepted Answer

The high-low method calculates variable cost per unit and fixed costs using the highest and lowest activity levels. Given the options, $160,000 is the estimated direct labor cost for 10,000 machine hours.

Question 15

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

Accepted Answer

The estimate of administrative costs for a month with 1,000 credit hours is given by the equation: 
Y = 99,191 + 100.778(X)
where Y is the estimated administrative costs and X is the number of credit hours. 
Substituting X = 1,000, we get: 
Y = 99,191 + 100.778(1,000) 
Y = 199,969.16 
Rounding to the nearest dollar, the estimate of administrative costs is $199,969. Therefore, the best choice is C.

Question 16

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

Accepted Answer

The answer of If the controller uses the high-low method...

Question 17

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

Accepted Answer

The answer of If the controller uses the high-low method...

Question 18

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

Accepted Answer

To use the high-low method, we need the highest level of activity and the lowest level of activity, as well as their respective costs. Unfortunately, this information is not given in the problem. However, we can use the information given to estimate the variable cost per maintenance hour.

Let's call the variable cost per maintenance hour "v" and the fixed cost "f". Using the information provided in the problem, we can set up two equations:

y1 = v * x1 + f
y2 = v * x2 + f

where y1 is the total maintenance cost for the month when x1 maintenance hours were worked, y2 is the total maintenance cost for the month when x2 maintenance hours were worked, and x1 and x2 are the respective number of maintenance hours for each month. We don't know what x1 and x2 are, but we can use the total maintenance cost and number of maintenance hours for the month given in the problem to set up two equations:

y1 = v * 360 + f
y2 = v * 420 + f

If we subtract the first equation from the second equation, we get:

y2 - y1 = v * (420 - 360)

Simplifying:

60v = y2 - y1

We don't know what y1 and y2 are, but we can assume that the difference between them is due solely to the variable cost of maintenance hours (i.e. we assume the fixed cost is the same in both months). Using the information given in the problem, we know that the maintenance cost increased by $630 between the two months and the maintenance hours increased by 60. Therefore:

60v = $630
v = $10.50 per maintenance hour

Now we can use this information to estimate the total maintenance cost for the month with 420 maintenance hours:

y = v * x + f
y = $10.50 * 420 + f
y = $4,410 + f

We don't know what f is, but we can estimate it using the information given in the problem. If we assume that the fixed cost stays the same in both months and use the information given in the problem, we can set up two more equations:

y1 = v * 360 + f
y2 = v * 420 + f

Subtracting the first equation from the second equation, we get:

y2 - y1 = v * (420 - 360)
y2 - y1 = $10.50 * (60)
y2 - y1 = $630

Therefore:

f = y1 - v * x1
f = y2 - v * x2 - $630
f = y1 - $10.50 * 360
f = y2 - $10.50 * 420 - $630

Simplifying:

f = $352.50
f = $983.50

We don't know which of these two estimates of f is more accurate, but we can use them both to estimate the total maintenance cost for the month with 420 maintenance hours:

y = v * x + f
y = $10.50 * 420 + $352.50
y = $4,410

y = v * x + f
y = $10.50 * 420 + $983.50
y = $4,461

The best answer choice is C, which is the closest to our estimate of $4,410.

Question 19

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

Accepted Answer

The cost equation for administrative salaries is Cost = $96,409.42 + $103.56(F1)(F10) Credit-hours.

Question 20

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

Accepted Answer

The high-low method calculates fixed costs by taking the total cost at the highest activity level minus the variable cost at that level. The fixed cost is $570.

Quiz 5: Cost Estimation