Question 1

Package Express Inc. operates a small package delivery service in the Jacksonville suburbs. If the company uses a regression equation to forecast total operating costs, the coefficient of the equation's independent variable would correspond to the:

Accepted Answer

The answer of Package Express Inc. operates a small package...

Question 2

Smith Products has determined that the number of machine hours worked (MH) drives the amount of manufacturing overhead incurred (MOH). On the basis of this relationship, a staff analyst has constructed the following regression equation: MOH = $240,000 + 8MH. Which of the choices correctly depicts the nature of Smith's variables? $\begin{array} { | l | l | l | l | } 
\hline & \text { Dependent } & & \text { Independent } \
\hline 1 & \mathrm { MOH } & & \mathrm { MOH } \
\hline 2 & \mathrm { MOH } & & \mathrm { MH } \
\hline 3 & \mathrm { MH } & & \mathrm { MOH } \
\hline 4 & \mathrm { MH } & & \mathrm { MH } \
\hline 5 & 8 & & 240.000 \
\hline
\end{array}$

Accepted Answer

The dependent variable is MOH (manufacturing overhead), and the independent variable is MH (machine hours), as indicated by the regression equation.

Question 3

A high R²measure in regression analysis is preferred because:

Accepted Answer

A high R² indicates that a large proportion of the variance in the dependent variable is explained by the independent variables, suggesting a good fit of the regression line through the data points.

Question 4

Resource Consulting is studying the costs of several clients, and has found graphs of cost behaviour patterns would appear as follows:
1. A straight line that gradually slopes upward to the right
2. A curvilinear line that gradually slopes upward to the right
3. A straight line that is parallel to the graph's horizontal axis
4. A straight line that gradually slopes downward to the right
5. A curvilinear line that gradually slopes downward to the right
6. A straight line that gradually slopes upward to the right and then, at a specific point, flattens out to run parallel to the horizontal axis
7. A series of straight lines that appear to resemble a set of steps
8. A straight line that runs parallel to the graph's horizontal axis and then, at a specific point, drops to a lower level
Unless told otherwise, assume that the horizontal axis represents total activity and the vertical axis represents total cost.
Required:
For items A-F below, indicate the number of the graph that best represents the cost behaviour pattern described. Note: Graphs can be used more than once, and not all graphs need be used.
 $\begin{array} { l l } 
15,000 \text { to } 29,999 \text { units } & \$ 5 \text { per unit } \
30,000 \text { to } 44,999 \text { units } & \$ 6 \text { per unit } \
45,000 \text { to } 59,999 \text { units } & \$ 7 \text { per unit }
\end{array}$

Accepted Answer

The answer of Resource Consulting is studying the costs of...

Question 5

George Henry Corporation has a machining capacity of 300,000 hours per year. Utilization of capacity is normally 60%; it has been as low as 25% and as high as 75%. An analysis of the accounting records revealed the following selected costs: $\begin{array}{l}
\begin{array}{lll}
\
\
\text { Cost A:}\
\text { Total}\
\text { Per hour}\
\text { Cost B:}\
\text { Total}\
\text { Per hour}\
\text { Cost C:}\
\text { Total}\
\text { Per hour}\
\end{array}
\begin{array}{c}
\text { At a } 25 \% \
\underline {\text { Utilization Rate }}\
\
\$ 500,000 \
\$ 6.67 \
\
? \
\$ 11.80 \
\
\$ 780,000 \
\$ 10.40
\end{array}
\begin{array}{lll}
\text { At a } 75 \% \
\underline {\text { Utilization Rate }}\
\
\$ 500,000 \
?\
\
\$ 2,655,000 \
\$ 11.80 \
\
\$ 2,330,000 \
\$ 10.36
\end{array}
\end{array}$
 George Henry uses the high-low method to analyze cost behaviour.
Required:
A. Classify each of the costs as being either variable, fixed, or semi-variable.
B. Calculate amounts for the two unknowns in the preceding table.
C. Calculate the total amount that George Henry would expect at a 60% utilization rate for Cost A, Cost B, and Cost C.
D. Develop an equation that George Henry can use to predict total cost for any level of hours within its range of operation.

Accepted Answer

The answer of George Henry Corporation has a machining capacity...

Question 6

Sugarsweet Confections Inc. produces one of the best brands of all natural jam in Ontario. The following information was obtained through an analysis of the accounting records:
1. Raw materials and packaging (strawberries and sugar) cost the company $5.00 per jar produced.
2. Compensation of production employees is $6.00 per jar produced.
3. Supervisory salaries total $33,000 per month.
4. The company incurs utility costs of $8,000 per month plus $0.50 per jar produced.
5. Insurance and property taxes average $7,000 per month.
Required:
A. Classify each cost as variable, fixed, or semi-variable.
B. Write a formula to express the behaviour of the firm's production costs. (Use the form Y = a + bX, where X denotes the quantity of jam produced.)

Accepted Answer

The answer of Sugarsweet Confections Inc. produces one of the...

Question 7

Yang Manufacturing, which uses the high-low method, makes a product called Yin. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,500 units and 10,000 units per month. Per-unit costs at two different activity levels for each cost type are presented below. $\begin{array}{|l|l|l|l|l|l|l|l|}
\hline&\text { Type A}&&\text { Type B}&&\text { Type C}&&\text { Total } \
\hline 5,000 \text { units } & \$ 4 & & \$ 9 && \$ 4 & & \$ 17 \
\hline 7.500 \text { units } & \$ 4 && \$ 6 & &\$ 3 & & \$ 13 \
\hline
\end{array}$ The cost formula that expresses the behaviour of Yang's total cost is:

Accepted Answer

The answer of Yang Manufacturing, which uses the high-low method,...

Question 8

Dollah Corporation is studying its marketing cost and sales volume, and has generated the following information by use of a scatter diagram and a least-squares regression analysis: $\begin{array} { | l | r | r | } 
\hline & \text { Scatter Diagram } & \text { Regression Analysis } \
\hline \text { Vaiable cost per unit sold } & \$ 7.50 & \$ 7.80 \
\text { Total monthly fixed cost } & \$ 55,000 & \$ 52,500 \
\hline
\end{array}$ Dollah is now preparing an estimate for monthly sales of 20,000 units. On the basis of the data presented, compute the most accurate sales forecast possible.

Accepted Answer

Using the regression analysis, we can find the equation for the total cost (TC) as follows:
TC = Total monthly fixed cost + Variable cost per unit sold x Sales volume
TC = $52,500 + $7.80 x 20,000 = $208,500
Therefore, the most accurate sales forecast for monthly sales of 20,000 units is $208,500.

Question 9

The following data were taken from the accounting records of Guild Corporation:
 $\begin{array} { l c c } 
\
\underline {\text { Month }} & \begin{array} { c } 
\text { Machine } \
\underline {\text { Hours }}
\end{array} & \begin{array} { c } 
\text { Manufacturing } \
\underline {\text { Overhead }}
\end{array} \
\text { August } & 46,000 & \$ 889,000 \
\text { September } & 60,000 & 1,130,000 \
\text { October } & 78,000 & 1,300,000 \
\text { November } & 62,000 & 1,000,000
\end{array}$ October's costs consisted of machine supplies ($190,000), property taxes ($30,000), and plant maintenance ($1,080,000). These costs exhibit the following respective behaviour: variable, fixed, and semi-variable.
Required:
A. Determine the machine supplies and property taxes for August. Round all calculations to two decimal places.
B. By using the high-low method, analyze Guild's plant maintenance cost and calculate the monthly fixed portion and the variable cost per machine hour.
C. Assume that present cost behaviour patterns continue into future months. Estimate the total amount of manufacturing overhead Guild can expect in December if 56,000 machine hours are worked.

Accepted Answer

The answer of The following data were taken from the...

Question 10

Consider the graphs that follow (the horizontal axis represents activity; the vertical axis represents total dollars).  Required:
For items A-I that follow, choose the graph that best represents the cost behaviour pattern described. Note: Graphs can be used more than once.
A. Straight-line depreciation on machinery.
B. The cost of chartering a private airplane. The cost is $800 per hour for the first 6 hours of a flight; it then drops to $600 per hour.
C. The wages of table service personnel in a restaurant. The employees are part-time workers who can be called upon for as little as 4 hours at a time.
D. Weekly wages of store clerks who work 40 hours each week. One clerk is hired for every 125 sales made during the month.
E. The cost of tires used in the production of trucks.
Up to 20,000 kilowatt hours (KWH): $4,000
Above 20,000 kilowatt hours: $4,000 + $0.02 per KWH

Accepted Answer

The answer of Consider the graphs that follow (the horizontal...

Question 11

Walnut Corporation operates a small medical lab in Mississauga, one that conducts minor medical procedures (including blood tests and x-rays) for a number of doctors. The lab consumes various medical supplies and is staffed by two technicians, both of whom are paid a monthly salary. In addition, there is an on-site office manager who is also paid by the month.
Required:
A. If the lab's patient count increases by, say, 15%, will the lab's total operating costs increase by 15%? Explain.
A. No. The lab has a mixture of both variable and fixed costs. Variable costs (such as supplies) will increase, directly paralleling the increase in clients. The salaries of the technicians and office manager are step-fixed in nature, meaning that a 15% hike in client load will likely do nothing to these expenditures. A possibility exists, though, that an increase in patient load could create the need for an added technician.
B. Fixed costs typically do not change when activity changes. However, the opening of a new branch will create the need for added technicians and presumably another office manager, thus causing costs to rise. In addition, facility rental charges will increase and there will be an added cost if the firm leases and/or depreciates equipment. Note: This answer assumes that the original facility will continue with existing personnel and not implement a job-sharing arrangement through a cutback in operating hours.
B. Walnut is considering opening an additional lab in a new medical building in Milton. What will likely happen to the lab's level of fixed cost incurrence? Why?
C. Possible methods include account classification, visual fit, high-low, and least-squares regression.

Accepted Answer

The answer of Walnut Corporation operates a small medical lab...

Question 12

Consider the six costs that follow.
1. Advertising and promotion costs of a do-it-yourself retailer
2. Surgical supplies used in a hospital's operating room
3. Aircraft depreciation charges of an airline
4. Utility charges that include a minimum-use fee, for a small business
5. Annual business licensing fee paid by a daycare centre
6. Truck fuel consumed by a road construction company
Required:
A. Classify each of these costs as variable, committed fixed, discretionary fixed, or semi-variable.
B. Briefly describe the behaviour of a per-unit variable cost as activity changes.
C. What elements are present in a semi-variable cost that cause it to behave in a semivariable manner?
D. Generally speaking, does management have more flexibility when dealing with committed fixed costs or discretionary fixed costs?

Accepted Answer

The answer of Consider the six costs that follow.
1. Advertising...

Question 13

Compare and contrast the following types of costs: (1) variable and step-variable and (2) fixed and step-fixed.

Accepted Answer

The answer of Compare and contrast the following types of...

Question 14

Which of the following is not an issue in the collection of data for cost estimation?

Accepted Answer

The use of predictions using the multiple regression method is a technique for cost estimation, not an issue in data collection.

Question 15

A staff assistant at Cornwall Corporation recently determined that the first four units completed in a new manufacturing process took 800 hours to complete, or an average of 200 hours per unit. The assistant also found that when the cumulative output produced doubles, the average labour time declines by 20%. On the basis of this information, how many total hours would Cornwall use if it produces 16 units?

Accepted Answer

The learning curve effect indicates that when output doubles, the average time per unit decreases by 20%. Starting with 200 hours per unit for 4 units, the average time for 8 units is 160 hours, and for 16 units, it is 128 hours. Total hours for 16 units = 16 units * 128 hours/unit = 2,048 hours.

Question 16

Checkers Corporation, which uses least-squares regression analysis, has derived the following regression equation for estimates of manufacturing overhead: Y = 495,000 + 5.65X. Which of the following statements is true if the primary cost driver is machine hours?

Accepted Answer

The equation Y = 495,000 + 5.65X indicates that $495,000 is the fixed component of manufacturing overhead, which does not change with machine hours.

Question 17

Waller Enterprises has determined that three variables play a key role in determining company revenues. To arrive at an objective forecast of revenues for the next accounting period, Waller should use:

Accepted Answer

Since there are three variables involved in determining company revenues, simple regression will not be sufficient as it only analyzes the relationship between two variables. A scatter diagram could be used to visualize the relationship but would not provide an objective forecast. The high-low method is a simplistic approach that uses only the highest and lowest observations to estimate the relationship between variables. Therefore, the best option would be multiple regression, which allows for the analysis of how multiple independent variables affect a dependent variable and can provide an objective forecast of revenues based on the three key variables.

Question 18

In regression analysis, the variable -cost component that is being predicted is known as the:

Accepted Answer

In regression analysis, the variable being predicted or explained is known as the dependent variable. In this case, the cost component is what is being predicted, so it is the dependent variable.

Question 19

Define the term "relevant range" and explain its importance in understanding cost behaviour.

Accepted Answer

The answer of Define the term "relevant range" and explain...

Question 20

Around Town Incorporated operates a small package delivery service in the Chicago suburbs. If the company uses a regression equation to forecast total operating costs, the equation's intercept would correspond to the:

Accepted Answer

The intercept in a regression equation represents the fixed costs, which are the costs that do not vary with the number of deliveries.

Quiz 6: Activity Analysis, Cost Behaviour, and Cost Estimation