Question 1

Which of the following tools is not associated with cost estimation?

Accepted Answer

Inversion equations are not typically used in cost estimation. They are more often used in physics and engineering to solve for unknown quantities in a system of equations. The other tools listed are all commonly used in cost estimation.

Question 2

Wesley 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, Wesley should use:

Accepted Answer

Since Wesley Enterprises has identified three key variables, multiple regression would be the best choice to create an objective forecast of revenues. Simple regression uses only one variable, while complex regression may introduce unnecessary complexity. A scatter diagram can be a helpful visual tool, but does not provide a quantitative forecast. The high-low method is a simplistic technique that only uses the highest and lowest data points, which may not accurately represent the whole data set.

Question 3

Booster, Inc. recently conducted a least-squares regression analysis to predict selling expenses. The company has constructed the following regression equation: Y = 329,000 + 7.80X. Which of the following statements is false if the primary cost driver is number of units sold?

Accepted Answer

The regression equation is predicting selling expenses, with the primary cost driver being the number of units sold, not the number of hours worked. Therefore, statement E is false. Statements A, B, C, and D are true based on the regression equation given.

Question 4

Chesley 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 answer of Chesley Corporation, which uses least-squares regression analysis,...

Question 5

Vincente Corporation has a machining capacity of 200,000 hours per year. Utilization of capacity is normally 75%; it has been as low as 40% and as high as 90%. An analysis of the accounting records revealed the following selected costs:  
Vincente uses the high-low method to analyze cost behavior.
Required: 
A. Classify each of the costs as being either variable, fixed, or semivariable.
B. Calculate amounts for the two unknowns in the preceding table.
C.
C. Calculate the total amount that Viscount would expect at a 75% utilization rate for Cost A, Cost B, and Cost
D. Develop an equation that Vincente can use to predict total cost for any level of hours within its range of operation.

Accepted Answer

The answer of Vincente Corporation has a machining capacity of...

Question 6

Mohammed 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 Mohammed's variables?

Accepted Answer

The answer of Mohammed Products has determined that the number...

Question 7

The following data relate to the Lisle Company for May and August of the current year: $\begin{array}{lrr} 
& \text { May } & \text { August } \
\text { Maintenance hours } & 25,000 & 29,000 \
\text { Maintenance cost } & \$ 1,175,000 & \$ 1,247,000
\end{array}$ May and August were the lowest and highest activity levels, and Lisle uses the high-low method to analyze cost behavior. If maintenance hours are estimated to be 26,000 hours in October, which of the following statements is true?

Accepted Answer

The answer of The following data relate to the Lisle...

Question 8

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 9

Temperance, Inc. is studying marketing cost and sales volume, and has generated the following information by use of a scatter diagram and a least-squares regression analysis:  Temperance is now preparing an estimate for monthly sales of 18,000 units. On the basis of the data presented, compute the most accurate sales forecast possible.

Accepted Answer

The answer of Temperance, Inc. is studying marketing cost and...

Question 10

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

Accepted Answer

The dependent variable is the variable that is being predicted or explained by the independent variables in a regression analysis.

Question 11

Wel-care Corporation operates a small medical lab in Nebraska 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 15%, will the lab's total operating costs increase by 15%? Explain.
B. Wel-care is considering opening an additional lab in a new suburban medical building. What will likely happen to the lab's level of fixed cost incurrence? Why?
C. What analysis methods would be available to the office manager and/or Wel-care management if a close look at the lab's cost behavior is desired?

Accepted Answer

The answer of Wel-care 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 center
6. Truck fuel consumed by a road construction company
Required:
A. Classify each of these costs as variable, committed fixed, discretionary fixed, or semivariable.
B. Briefly describe the behavior of a per-unit variable cost as activity changes.
C. What elements are present in a semivariable 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

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

Accepted Answer

All the options listed (outliers, missing data, mismatched time periods, and inflation) are indeed issues that can arise during the collection of data for cost estimation.

Question 14

A staff assistant at Whitmere 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 labor time declines by 20%. On the basis of this information, how many total hours would Washington use if it produces 16 units?

Accepted Answer

First, we use the information given to find the average labor time for producing one unit after the cumulative output has doubled:

- Average labor time for first four units: 200 hours/unit
- When cumulative output doubles, average labor time decreases by 20%, meaning it becomes 160 hours per unit.
- Therefore, the average time to produce one unit after the first four is 160 hours.

Now we can use this average labor time to find the total hours required to produce 16 units:

- First four units took a total of 800 hours (4 x 200).
- The remaining 12 units will take a total of 12 x 160 = 1920 hours.
- The total time to produce all 16 units is 800 + 1920 = 2720 hours.

However, the question asks specifically for the hours that "Washington" would use to produce the 16 units, while the information given only refers to "Whitmere Corporation". There is no explanation or context provided to make a connection between these two entities, so it's unclear whether this is a mistake or some additional information is missing. Nonetheless, based solely on the given information, the best answer is D.

Question 15

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. $\begin{array}{lcccc} 
& \text { Type A } & \text { Type B } & \text { Type C } & \text { Total } \
5,000 \text { units } & \$ 4 & \$ 9 & \$ 4 & \$ 17 \
7,500 \text { units } & \$ 4 & \$ 6 & \$ 3 & \$ 13
\end{array}$ The cost types shown above are identified by behavior as:

Accepted Answer

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

Question 16

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. $\begin{array}{lcccc} 
& \text { Type A } & \text { Type B } & \text { Type C } & \text { Total } \
5,000 \text { units } & \$ 4 & \$ 9 & \$ 4 & \$ 17 \
7,500 \text { units } & \$ 4 & \$ 6 & \$ 3 & \$ 13
\end{array}$ The cost formula that expresses the behavior of Yang's total cost is:

Accepted Answer

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

Question 17

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. $\begin{array}{lcccc} 
& \text { Type A } & \text { Type B } & \text { Type C } & \text { Total } \
5,000 \text { units } & \$ 4 & \$ 9 & \$ 4 & \$ 17 \
7,500 \text { units } & \$ 4 & \$ 6 & \$ 3 & \$ 13
\end{array}$ If Yang produces 10,000 units, the total cost would be:

Accepted Answer

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

Question 18

Around Town, Inc. operates a small package delivery service in the Columbus 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 remain the same regardless of the level of activity (in this case, the number of deliveries). Therefore, the intercept corresponds to the fixed operating costs of the small package delivery service operated by Around Town, Inc.

Question 19

Sunshine Valley Meat Company produces one of the best sausage products in Pennsylvania. The company's controller compiled the following information by analyzing the accounting records:
1. Meat costs the company $3.25 per pound of sausage produced.
2. Compensation of production employees is $2.25 per pound of sausage produced.
3. Supervisory salaries total $23,000 per month.
4. The company incurs utility costs of $9,000 per month plus $0.35 per pound of sausage produced.
5. Insurance and property taxes average $6,400 per month.
Required:
A. Classify each cost as variable, fixed, or semivariable.
B. Write a formula to express the behavior of the firm's production costs. (Use the form Y = a + bX, where X denotes the quantity of sausage produced.)

Accepted Answer

The answer of Sunshine Valley Meat Company produces one of...

Question 20

The following selected data were taken from the accounting records of Schein Industrial Manufacturing: $\begin{array}{llr}\text { Month } & \begin{array}{c}
\text { Machine } \
\text { Hours }
\end{array} & \begin{array}{c}
\text { Manufacturing } \
\text { Overhead }
\end{array}\
\text { May } & 46,000 & \$ 889,000 \
\text { June } & 60,000 & 1,130,000 \
\text { July } & 68,000 & 1,274,000 \
\text { August } & 52,000 & 980,000
\end{array}$ 
Manufacturing overhead consists of three different costs; (1) machine supplies (variable), (2) property taxes (fixed), and (3) plant maintenance (semivariable). July's overhead costs were $170,000 for machine supplies, $24,000 for property taxes, and $1,080,000 for plant maintenance.
Required: 
A. Determine the machine supplies and property taxes for May.
B. By using the high-low method, analyze Schein's plant maintenance cost and calculate the monthly fixed portion and the variable cost per machine hour.
C. Assume that present cost behavior patterns continue into future months. Estimate the total amount of manufacturing overhead the company can expect in September if 56,000 machine hours are worked.

Accepted Answer

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

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

Which of the following tools is not associated with cost estimation?

Wesley 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, Wesley should use:

Booster, Inc. recently conducted a least-squares regression analysis to predict selling expenses. The company has constructed the following regression equation: Y = 329,000 + 7.80X. Which of the following statements is false if the primary cost driver is number of units sold?

Chesley 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?

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:

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

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

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