Question 1

Regression analysis

Accepted Answer

Regression analysis utilizes all available data points to estimate a cost equation, making it a comprehensive method for understanding cost behavior by analyzing the relationship between a dependent variable (cost) and one or more independent variables (activity level).

Question 2

C-Drive Components has collected the following production data for the past four months: $$\begin{array} { c r } 
\text { Units produced } & \text { Total cost } \
\hline 7,000 & \$ 16,500 \
10,000 & 22,500 \
8,500 & 17,750 \
9,000 & 21,000
\end{array}$$ If the high-low method is used, what is the monthly total cost equation?

Accepted Answer

The high-low method is used to estimate the variable cost per unit and the fixed cost component of a cost function. The variable cost per unit is calculated as the difference between the total cost at the highest level of production and the total cost at the lowest level of production, divided by the difference in the number of units produced at those two levels. The fixed cost component is calculated as the total cost at the lowest level of production, minus the variable cost per unit multiplied by the number of units produced at that level.In this case, the highest level of production is 10,000 units and the total cost at that level is $22,500. The lowest level of production is 7,000 units and the total cost at that level is $16,500. The difference in the number of units produced at those two levels is 10,000 - 7,000 = 3,000 units. The variable cost per unit is calculated as ($22,500 - $16,500) / 3,000 = $2.00 per unit. The fixed cost component is calculated as $16,500 - ($2.00 × 7,000) = $2,500.Therefore, the monthly total cost equation is Total cost = $2,500 + ($2.00 × units produced).

Question 3

Window Shine is provides window cleaning service. Information concerning costs and number of windows cleaned for three months during 2014 appear below: $\begin{array}{clr}\text { Month }&\text { Activity }& \text { Cost }\
\text { May } & 18,000 \text { windows } & \$ 84,000 \
\text { July } & 21,000 \text { windows } & 94,500 \
\text { September } & 20,400 \text { windows } & 94,800
\end{array}$ Using the high-low method, what is the amount of total fixed costs?

Accepted Answer

The answer of Window Shine is provides window cleaning service....

Question 4

A cost is $34,500 at an activity level of 23,000 units, and $42,000 at an activity level of 28,000 units. What type of cost is this?

Accepted Answer

The answer of A cost is $34,500 at an activity...

Question 5

Hardigree Insurance has collected the following information over the last six months. $$\begin{array} { c c c } 
\text { Month } & \text { Units produced } & \text { Total costs } \
\text { March } & 2,000 & \$ 6,700 \
\text { April } & 3,200 & 9,400 \
\text { May } & 2,200 & 7,100 \
\text { June } & 3,000 & 9,500 \
\text { July } & 2,800 & 8,000 \
\text { August } & 2,100 & 6,600
\end{array}$$ Using the high-low method, how much is the variable cost per unit?

Accepted Answer

Variable cost per unit = (Highest total cost - Lowest total cost) / (Highest units produced - Lowest units produced)= (9,500 - 6,600) / (3,200 - 2,000)= 2,900 / 1,200= $2.25

Question 6

Hardigree Insurance has collected the following information over the last six months. $$\begin{array} { c c c } 
\text { Month } & \text { Units produced } & \text { Total costs } \
\text { March } & 2,000 & \$ 6,700 \
\text { April } & 3,200 & 9,400 \
\text { May } & 2,200 & 7,100 \
\text { June } & 3,000 & 9,500 \
\text { July } & 2,800 & 8,000 \
\text { August } & 2,100 & 6,600
\end{array}$$ Using the high-low method, what is the estimated total cost in a month when 3,100 units are produced?

Accepted Answer

The high-low method is used to estimate the fixed and variable costs of a company. The fixed costs are the costs that do not change with the level of production, while the variable costs are the costs that do change with the level of production.To use the high-low method, we first need to find the highest and lowest levels of production and their corresponding total costs. In this case, the highest level of production is 3,200 units in April, and the lowest level of production is 2,000 units in March. The corresponding total costs are $9,400 and $6,700, respectively.Next, we need to calculate the variable cost per unit. This is done by dividing the difference in total costs by the difference in production levels. In this case, the variable cost per unit is ($9,400 - $6,700) / (3,200 - 2,000) = $0.875.Finally, we can use the variable cost per unit to estimate the total cost for any given level of production. In this case, we want to estimate the total cost for a month when 3,100 units are produced. To do this, we simply multiply the variable cost per unit by the number of units produced. In this case, the estimated total cost is $0.875 * 3,100 = $2,712.50.Therefore, the estimated total cost in a month when 3,100 units are produced is $2,712.50.

Question 7

Which of the following is not a method that is used to estimate variable and fixed costs?

Accepted Answer

CVP analysis is used to determine the break-even point and does not involve separating costs into variable and fixed components. The other methods listed (account analysis, high-low method, and regression analysis) are all used to estimate variable and fixed costs.

Question 8

The range of activity for which estimates and predictions are likely to be accurate is the

Accepted Answer

The relevant range is the range of activity in which the assumptions made for estimating and predicting costs are valid. Outside of this range, the assumptions may not hold and the estimates and predictions may not be accurate. Therefore, option C is the correct answer. The other options are not related to the range for which estimates and predictions are likely to be accurate.

Question 9

The account analysis approach to estimating fixed and variable costs

Accepted Answer

The account analysis approach relies on the manager's professional judgment to classify costs as either fixed, variable, or mixed based on their behavior in relation to changes in activity levels. It does not necessarily require a specific amount of historical data, nor is it limited to situations where other methods cannot be applied, and it can be useful for all types of expenses, including general and selling expenses.

Question 10

The high-low method calculates the total fixed cost as the

Accepted Answer

The high-low method calculates the total fixed cost by first finding the variable cost per unit (change in cost divided by the change in activity level for two points) and then using this to calculate the total fixed cost as the difference between total costs and total variable costs at a particular activity level. However, the correct definition of the high-low method was not provided in the options as described, leading to a misunderstanding in the explanation. The high-low method actually involves identifying the highest and lowest levels of activity and their corresponding total costs to estimate the variable cost per unit and the total fixed costs. None of the options accurately describe this process.

Question 11

A significant weakness of the high-low method is that

Accepted Answer

The high-low method relies on only two data points, which may not accurately reflect the overall relationship between cost and activity. This can lead to inaccurate cost estimations and affect decision-making based on those estimations. The other choices are not relevant weaknesses of the high-low method.

Question 12

Which of the following is a cost estimation approach that is not based on fitting historical data points to a line?

Accepted Answer

Margin of safety analysis is not based on fitting historical data points to a line. It instead focuses on determining the amount of sales revenue necessary to cover all fixed and variable costs and achieve a desired level of profit. Choices A, B, and C all involve using historical data points to create cost estimates.

Question 13

Total costs were $38,400 when 16,000 units were produced and $41,100 when 17,200 units were produced. If the high-low method is used, how much are estimated total costs for a production level of 17,100 units?

Accepted Answer

Step 1: Find the variable cost per unit: 
Variable cost per unit = (Total cost at high activity level - Total cost at low activity level) ÷ (High activity level - Low activity level) 
= ($41,100 - $38,400) ÷ (17,200 - 16,000) 
= $2,700 ÷ 1,200 
= $2.25

Step 2: Find the fixed cost: 
Total fixed cost = Total cost at low activity level - (Variable cost per unit x Low activity level) 
= $38,400 - ($2.25 x 16,000) 
= $38,400 - $36,000 
= $2,400

Step 3: Use the cost formula to estimate total costs for a production level of 17,100 units: 
Estimated total cost = Total fixed cost + (Variable cost per unit x Production level) 
= $2,400 + ($2.25 x 17,100) 
= $2,400 + $38,475 
= $40,875

Therefore, the estimated total costs for a production level of 17,100 units is $40,875. The best choice is D.

Question 14

Duradyne, Inc. has total costs of $18,000 when 2,000 units are produced and $26,000 when 5,200 units are produced. During March, 4,000 units were produced and sold for $8 each. If the high-low method is used, how much is the variable cost per unit?

Accepted Answer

The answer of Duradyne, Inc. has total costs of $18,000...

Question 15

A cost is $11,000 at 1,000 units, $12,000 at 2,000 units, and $13,000 at 3,000 units. Using the high-low method, how much is the fixed portion of these costs?

Accepted Answer

The high-low method involves finding the change in cost between the highest and lowest activity levels, and then dividing that change in cost by the change in activity levels, to determine the variable cost per unit. 
The change in cost between 1,000 units and 3,000 units is $2,000 ($13,000 - $11,000), and the change in activity levels is 2,000 units (3,000 - 1,000). Therefore, the variable cost per unit is $1 ($2,000 ÷ 2,000).
Using the variable cost per unit of $1 and the cost of either the highest or lowest activity level, we can calculate the fixed cost. 
Using the cost of 1,000 units: 
Cost = Variable cost per unit × Activity level + Fixed cost 
$11,000 = ($1 × 1,000) + Fixed cost 
Fixed cost = $10,000 
Therefore, the fixed portion of these costs is $10,000.

Question 16

Management of MRC Enterprises has provided the following output from Excel^®: $\begin{array}{lr}\hline\text { SUMMARY OUTPUT }\ \hline\text { Statistics }\ \hline \text { Multiple R } & 0.8939072 \ \text { R Square } & 0.7990702 \ \text { Adjusted R2 } & 0.7458377 \ \text { Standard Enor } & 10744.516 \ \text { Observations } & 6 \ \hline \end{array}$ $\begin{array}{lrrrrr} \hline\text { ANOVA }&df&SS&MS&F&\text { Signpificance }F\ \hline \text { Regression } & 1 & 1836429 & 1836429 & 1590745 & 0.0162864 \ \text { Resichual } & 4 & 46177852 & 11544463 & & \ \text { Total } & 5 & 2298208 & & & \ \hline \end{array}$ $\begin{array}{lrlllllll} \hline \text { Coefficients } & \text { Sid Enor } & t \text { Stat } & \text { P-value } & \text { Lower 95\% } & \text { Upper 05\% } & \text { Lower 95\% }& \text { Upper 95\% } \ \hline \text { Intercept } & 47757.05 & 34958.30 & 1.36611 & 0.24366 & 49302.764 & 144816.58 & 49302 . & 144816.5 \ \text { X Variable 1 } & 6.364 & 1.595798 & 3.98841 & 0.01628 & 1.9340590 & 10.795352 & 1.9340 & 10.79535\\hline \end{array}$ What is the estimated cost for a production level of 1,200 units?

Accepted Answer

The estimated cost can be calculated using the regression equation: Cost = Intercept + (X Variable 1 * Production Level). Plugging in the values: Cost = 47757.05 + (6.364 * 1200) = 55394.05, which rounds to $55,394.

Question 17

Princeton offers a large range of undergraduate courses. The University is interested in determining the cost equation for the facilities cost as a function of student credit hours so that it can more accurately budget its facilities costs as enrollment grows. Information for the high and low cost semesters and volumes for last 5 years appears below: $\begin{array}{cll}\text { Semester }& \text { Student Credit Hours } & \text { Facilities Cost }\
\text { Spring 2014 } & 160,000 & \$ 750,000 \
\text { Fall 2017 } & 140,000 & \$ 660,000
\end{array}$ Using the high-low method, with student credit hours as the activity driver, what is the equation for facilities cost (FC) as a function of student credit hours?

Accepted Answer

The high-low method calculates the variable cost per unit as the change in cost divided by the change in activity. Here, the change in cost is $90,000 and the change in student credit hours is 20,000, giving a variable cost of $4.50 per student credit hour. The fixed cost is calculated by subtracting the total variable cost at either high or low activity level from the total cost, resulting in $30,000. Thus, the cost equation is FC = $30,000 + $4.50 / student credit hour.

Question 18

Walsh Company graphed its units produced and total production costs for the past eight months. What is this called?

Accepted Answer

The graph of units produced and total production costs is called a scattergraph.

Question 19

Ranger Pressure Cleaners has total monthly costs of $5,800 when 3,200 units are produced and $6,425 when 3,700 units are produced. If the high-low method is used, how much is the estimated total monthly fixed cost?

Accepted Answer

The answer of Ranger Pressure Cleaners has total monthly costs...

Question 20

Hardigree Insurance has collected the following information over the last six months. $$\begin{array} { c c c } 
\text { Month } & \text { Units produced } & \text { Total costs } \
\text { March } & 2,000 & \$ 6,700 \
\text { April } & 3,200 & 9,400 \
\text { May } & 2,200 & 7,100 \
\text { June } & 3,000 & 9,500 \
\text { July } & 2,800 & 8,000 \
\text { August } & 2,100 & 6,600
\end{array}$$ Using the high-low method, how much is the total fixed cost?

Accepted Answer

The answer of Hardigree Insurance has collected the following information...

Quiz 4: Cost-Volume-Profit Analysis