Question 1

Technology and complexity issues often lead management to simplify and to:

Accepted Answer

A)  Use linear estimation methods. 
B)  Use volume-based costing and nonlinear estimation methods. 
C)  Use volume-based costing methods. 
D)  Use nonlinear estimation methods. 
E)  Use activity-based costing and volume-based costing methods. 
A)  Use linear estimation methods. 
B)  Use volume-based costing and nonlinear estimation methods. 
C)  Use volume-based costing methods. 
D)  Use nonlinear estimation methods. 
E)  Use activity-based costing and volume-based costing methods. A

Question 2

A range around the regression line within which the management accountant can rely that the actual value of the predicted cost will fall is referred to as:

Accepted Answer

A)  A relevant range. 
B)  A goodness of fit. 
C)  A confidence interval. 
D)  A t-value. 
E)  A p-value. 
A)  A relevant range. 
B)  A goodness of fit. 
C)  A confidence interval. 
D)  A t-value. 
E)  A p-value. C

Question 3

School Kids' ShoeStore expanded the size of its store in Westfield, NJ two months ago. The owner, Montgomery Brown, has asked you to develop an analysis of the cost structure in his store, as a basis for assessing the profitability of his business. He provides you with account data for the most recent month, which he explains is representative of what these costs are in most months of the year; there is not much seasonality in his business. Last month, May, 890 pairs of shoes were sold. This month Montgomery expects to sell 1,100 pairs of shoes. NOTE: Assume that Mr. Brown purchases promptly on a day-to-day basis to replace inventory, so that the level of inventory remains constant.
Required:
(1) Develop the cost equation for Mr. Brown's store, using the account classification method, assuming that the cost object is each pair of shoes.
(2) Mr. Brown plans to increase sales by 25% next month, July, by reducing the price of his shoes. Assuming a 25% increase in sales, what is the lowest price Mr. Brown can sell his shoes for if he wants to meet all costs plus make $1 profit per pair of shoes?
(3) What would the profit per pair of shoes be if sales actually increased by only 15% and the shoes were sold at the price calculated in (2)?

Accepted Answer

Variable Costs (solve for May or June; here solved for May)   
Cost Function Equation: = $5,180 + [$9.52 × (pairs of shoes sold)]

Can Also Use High-Low Method:
($15,652 − $13,653)/(1,100 − 890) = $9.52
(2) New Sales	= 1,100 × 1.25
 	= 1,375 units
Total Costs	= $5,180 + ($9.52 × 1,375)
 	= $18,270
Per Unit Total Costs	= $18,270/1,375
 	= $13.29
Add $1 profit per shoes: $13.29 + $1.00 = $14.29
(3) Adjusted New Sales	= 1,100 × 1.15
 	= 1,265 units
Revenue	= $14.29 × (1,265)
 	= $18,077
Total Cost	= $5,180 + $9.52 × (1,265)
 	= $17,223
Cost Per Pair of Shoes	= $17,223/1,265 = $13.615
Profit Per Pair of Shoes	= $14.29 − $13.615 = $0.675

Question 4

________ is a statistical method for obtaining the unique cost-estimating equation that best fits a set of data points.

Accepted Answer

A)  Reciprocal method 
B)  High-low method 
C)  Regression analysis 
D)  Cost recession analysis 
A)  Reciprocal method 
B)  High-low method 
C)  Regression analysis 
D)  Cost recession analysis

Question 5

Pearson Electric Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year.$\begin{array}{llll}\text { Month } & \operatorname{Cost}(\mathrm{Y})&\operatorname{Hours}(\mathrm{H})\
\text { January } & \$  7,300 & 260 \
\text { February } & \$  9,125 & 730 \
\text { March } & \$  7,540 & 410 \
\text { April } & \$  7,485 & 330 \
\text { May } & \$  9,460 & 980 \
\text { June } & \$  9,030 & 705
\end{array}$What is the estimated total cost at an operating level of 1,180 hours, using the high-low method?

Accepted Answer

A)  $10,060. 
B)  $10,145. 
C)  $10,015. 
D)  $10,805. 
A)  $10,060. 
B)  $10,145. 
C)  $10,015. 
D)  $10,805.

Question 6

Sterling Glass Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year. What is the estimated total cost at an operating level of 150 hours?

Accepted Answer

A)  $4,385.00. 
B)  $4,785.20. 
C)  $4,185.65. 
D)  $4,875.00. 
A)  $4,385.00. 
B)  $4,785.20. 
C)  $4,185.65. 
D)  $4,875.00.

Question 7

Based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X). The following relationship was found:
Y = $1,000 + $2X
The $2 in the equation is an estimate of:

Accepted Answer

A)  Total fixed costs. 
B)  Variable overhead costs per direct labor hour. 
C)  Total overhead costs. 
D)  Fixed overhead costs per direct labor hour. 
A)  Total fixed costs. 
B)  Variable overhead costs per direct labor hour. 
C)  Total overhead costs. 
D)  Fixed overhead costs per direct labor hour.

Question 8

Marshall Co. produced a pilot run of fifty units of a recently developed piston used in one of its products. Marshall expected to produce and sell 1,950 units annually. The pilot run required an average of.55 direct labor hours per piston for 50 pistons. Marshall experienced an eighty percent learning curve on the direct labor hours needed to produce new pistons. Past experience indicated that learning tends to cease by the time 800 pistons are produced.
Marshall's manufacturing costs for pistons are presented below.
$\begin{array}{lc}
\text { Direct labor } & \$ 14.00 \text { per direct labor hour } \
\text { Variable overhead } & 12.00 \text { per direct labor hour } \
\text { Fixed overhead } & 20.00 \text { per direct labor hour } \
\text { Materials } & 5.00 \text { per unit }
\end{array}$Marshall received a quote of $9 per unit from Kytel Machine Co. for the additional 1,900 needed pistons. Marshall frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Kytel.
If the pistons are manufactured by Marshall Co., the total direct labor hours for the first 800 pistons (including the pilot run) produced is calculated to be (round to two digits after the decimal point):

Accepted Answer

A)  167.11. 
B)  173.69. 
C)  176.95. 
D)  180.22. 
E)  192.04. 
A)  167.11. 
B)  173.69. 
C)  176.95. 
D)  180.22. 
E)  192.04.

Question 9

Which of the following is not a step in the typical cost estimation process?

Accepted Answer

A)  Determine the cost drivers. 
B)  Determine the time required for building the model. 
C)  Select and employ the estimation method. 
D)  Graph the data. 
A)  Determine the cost drivers. 
B)  Determine the time required for building the model. 
C)  Select and employ the estimation method. 
D)  Graph the data.

Question 10

Which one of the following cost estimation methods is the most accurate?

Accepted Answer

A)  Regression analysis. 
B)  Visual fit. 
C)  Subjective forecasting. 
D)  The high-low method. 
A)  Regression analysis. 
B)  Visual fit. 
C)  Subjective forecasting. 
D)  The high-low method.

Question 11

Felinas Inc. produces floor mats for cars and trucks. The owner, Kenneth Felinas, asked you to assist him in estimating his maintenance costs. Together, Mr. Felinas and you determined that the single best cost driver for maintenance costs was machine hours. Below are data from the previous fiscal year for maintenance expense and machine hours: Using the high-low method, unit variable cost is calculated to be:

Accepted Answer

A)  $1.31. 
B)  $1.59. 
C)  $1.36. 
D)  $1.14. 
E)  $1.20. 
A)  $1.31. 
B)  $1.59. 
C)  $1.36. 
D)  $1.14. 
E)  $1.20.

Question 12

Georgia Meadows Company uses the high-low method to analyze production costs. The following information relates to the production data for the first six months of the year.$\begin{array}{llll}\text { Month } & \operatorname{Cost}(\mathrm{Y})&\operatorname{Hours}(\mathrm{H})\
\text { January } & \$  8,542 & 6,530 \
\text { February } & \$  7,750 & 5,950 \
\text { March } & \$  9,700 & 7,500 \
\text { April } & \$  7,435 & 5,700 \
\text { May } & \$  7,200 & 5,500 \
\text { June } & \$  9,263 & 6,750
\end{array}$What is the estimated total cost at an operating level of 8,000 hours?

Accepted Answer

A)  $9,525. 
B)  $9,835. 
C)  $10,185. 
D)  $10,325. 
A)  $9,525. 
B)  $9,835. 
C)  $10,185. 
D)  $10,325.

Question 13

Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget. Examination of past records disclosed the following costs and volume measures:$\begin{array}{lrr} 
& \text { Highest } & \text { Lowest } \
\text { Cost per month } & \$ 86,000 & \$ 74,000 \
\text { Machine hours } & 96,000 & 66,000
\end{array}$Using the high-low technique, estimate the annual fixed cost for maintenance expenditures:

Accepted Answer

A)  $447,400. 
B)  $368,800. 
C)  $532,900. 
D)  $571,200. 
E)  $218,700. 
A)  $447,400. 
B)  $368,800. 
C)  $532,900. 
D)  $571,200. 
E)  $218,700.

Question 14

Armer Company is accumulating data to use 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 the use of linear regression to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis follow: The coefficient of determination for Armer's regression equation for the maintenance activities is

Accepted Answer

A)  34.469/49.515. 
B)  0.99724. 
C)  square root of 0.99724. 
D)  (0.99724)2. 
E)  None of these answer choices are correct. 
A)  34.469/49.515. 
B)  0.99724. 
C)  square root of 0.99724. 
D)  (0.99724)2. 
E)  None of these answer choices are correct.

Question 15

A data point that is outside the normal distribution of data is called an "outlier," which is often removed from the data before analysis because it:

Accepted Answer

A)  Leads to unbiased calculations. 
B)  Can distort the results of the data analysis. 
C)  Has an upward bias on the statistical measures in regression. 
D)  Will always add bias to the results of a high-low analysis. 
A)  Leads to unbiased calculations. 
B)  Can distort the results of the data analysis. 
C)  Has an upward bias on the statistical measures in regression. 
D)  Will always add bias to the results of a high-low analysis.

Question 16

Which of the following five steps (out of six) of cost estimation is out of order?

Accepted Answer

A)  Step 1: Define the cost object to be estimated. 
B)  Step 2: Determine the cost driver(s). 
C)  Step 3: Collect relevant data on the cost of the cost object and the cost driver. 
D)  Step 4: Evaluate the accuracy of the cost estimate. 
E)  Step 5: Select and employ the estimation method. 
A)  Step 1: Define the cost object to be estimated. 
B)  Step 2: Determine the cost driver(s). 
C)  Step 3: Collect relevant data on the cost of the cost object and the cost driver. 
D)  Step 4: Evaluate the accuracy of the cost estimate. 
E)  Step 5: Select and employ the estimation method.

Question 17

Elisko Inc. is a major book distributor. Elisko's Shipping Department consists of a manager plus ten other permanent positions- four supervisors and six loaders. The four supervisors and six loaders provide the minimum staff and frequently must be supplemented by additional workers, especially during the weeks when the volume of shipments is heavy. Thus, the number of people shipping the orders frequently averages over 30 per week, i.e., ten permanent persons plus 20 temporary workers. The temporary workers are hired through a local agency. Elisko must use temporary workers to maintain a minimum daily shipment rate of 95 percent of orders presented for shipping. The loss of efficiency from using temporary workers is minimal, and the $10.00 per hour cost of temporary workers is less than the $15.00 per hour for the loaders and $22.50 per hour for the supervisors on Elisko's permanent staff. The agency requires Elisko to utilize each temporary worker for at least four hours each day.
Jim Locter, Shipping Manager, schedules temporary help based on forecasted orders for the coming week. Supervisors serve as loaders until temporary help is needed. A supervisor stops loading when the ratio of loaders to supervisors reaches 7:1. Locter knows that he will need temporary help when the forecasted average daily orders exceed 300. Locter has frequently requested from two to four extra temporary workers per day to guard against unexpected rush orders. If there was not enough work, he would dismiss the extra people at noon after four hours of work.
The agency has not been pleased with Locter's practice of overhiring and has notified Elisko that it is changing its policy. From now on, if a person is dismissed before an eight-hour assignment is completed, Elisko will still be charged for an eight-hour day plus mileage back to the agency for reassignment. This policy would go into effect the following week.
Paula Brand, General Manager, called Jim Locter to her office when she received the notice from the agency. She told Locter, "Your staffing has to be better. This penalty could cost us up to $300 - $500 per week in labor cost for which we receive no benefit. Why can't you schedule better?"

Locter replied, "I agree that the staffing should be better, but I can't do it accurately when there are rush orders. By being able to layoff people at noon, I have been able to adjust for the uncertain order schedule without cost to the company. Of course the agency's new policy changes this."
Locter and Brand contacted Elisko's Controller, Mitch Berg regarding Locter's problem on how to estimate the number of people needed each week. Berg reasoned that Locter needed a quick solution until he could study the work flow. Berg suggested a regression analysis using the number of orders shipped as the independent variable and the number of workers (permanent plus temporary) as the dependent variable. Berg indicated that data for the past year was available and that the analysis could be done quickly using the accounting department's computer system.

Berg completed the two regression analyses that are presented below. The first regression was based on the data for the entire year. The second regression excluded the weeks when only the 10 permanent staff persons were used; these weeks were unusual and appeared to be out of the relevant range.
Locter was not familiar with regression analysis and, therefore, was unsure how to implement this technique. He wondered which regression data he should employ, i.e., which one was better. When he recognized that the regression was based on actual orders shipped by week, Berg told him he could use the forecasted shipments for the week to determine the number of workers needed.
Regression Equation:
W = a + bS
S = orders shipped
   Required:
(1) Using Regression 1 based on data from a full year, calculate the number of temporary workers Jim Locter would plan to hire for a forecast indicating 1,200 shipments per day.
(2) Which one of the two regressions appears to be better? Explain your answer.
(3) Explain the circumstances under which Jim Locter can use the regression in his planning for temporary workers.
(4) Explain whether the regression analysis that Elisko Inc.employed in this situation could be improved.If it cannot be improved, explain why.
(5) How can the regression analysis help Elisko be more competitive?

Accepted Answer

(Suggested response. Calculation and ess

Question 18

Home Remodeling Inc. recently obtained a short-term bank loan from City National Bank. The bank required that certain credit information and pro forma financial statements be maintained through the life of the loan. In order to prepare the pro forma statements, Home Remodeling must forecast total overhead cost. The actual machine hours and overhead cost are presented below for the past six months. Using the high-low method, total monthly fixed overhead cost is calculated to be:

Accepted Answer

A)  $626. 
B)  $696. 
C)  $612. 
D)  $690. 
E)  $722. 
A)  $626. 
B)  $696. 
C)  $612. 
D)  $690. 
E)  $722.

Question 19

Pearson Electric Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year. How should the cost function be properly stated using the high-low method?

Accepted Answer

A)  Y = $6,025 + $2.00H. 
B)  Y = $6,520 + $3.00H. 
C)  Y = $6,085 + $2.00H. 
D)  Y = $6,250 + $3.00H. 
A)  Y = $6,025 + $2.00H. 
B)  Y = $6,520 + $3.00H. 
C)  Y = $6,085 + $2.00H. 
D)  Y = $6,250 + $3.00H.

Question 20

Burmer Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. Data regarding the machine hours and maintenance costs for the last year and the results of the regression analysis are as follows: A staff assistant has run regression analyses on the data and obtained the following output using Excel:
REGRESSION ANALYSIS
Y (Dependent) Variable: Maintenance Cost
X (Independent) Variable: Maintenance H The t statistic for the independent variable:

Accepted Answer

A)  Is statistically significant at less than 5% risk 
B)  At 11.46, is statistically significant 
C)  At 52.78, is too large to be statistically significant 
D)  Lies somewhere between 6.49 and 7.063 
A)  Is statistically significant at less than 5% risk 
B)  At 11.46, is statistically significant 
C)  At 52.78, is too large to be statistically significant 
D)  Lies somewhere between 6.49 and 7.063

Technology and complexity issues often lead management to simplify and to:

A range around the regression line within which the management accountant can rely that the actual value of the predicted cost will fall is referred to as:

________ is a statistical method for obtaining the unique cost-estimating equation that best fits a set of data points.

Sterling Glass Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year.What is the estimated total cost at an operating level of 150 hours?

Based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X). The following relationship was found: Y = $1,000 + $2X The $2 in the equation is an estimate of:

Which of the following is not a step in the typical cost estimation process?

Which one of the following cost estimation methods is the most accurate?

A data point that is outside the normal distribution of data is called an "outlier," which is often removed from the data before analysis because it:

Which of the following five steps (out of six) of cost estimation is out of order?

Pearson Electric Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year.How should the cost function be properly stated using the high-low method?

Cost Management and Strategy

Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

Basic Cost Management Concepts

Job Costing

Activity-Based Costing and Customer Profitability Analysis

Process Costing

Cost Allocation: Departments, Joint Products, and By-Products

Short-Term Profit Planning: Cost-Volume-Profit CVP Analysis

Strategy and the Master Budget

Decision Making With a Strategic Emphasis

Strategy and the Analysis of Capital Investments

Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing

Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial Performance Measures

Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

Operational Performance Measurement: Further Analysis of Productivity and Sales

The Management and Control of Quality

Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard

Strategic Performance Measurement: Investment Centers and Transfer Pricing

Management Compensation, Business Analysis, and Business Valuation

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Exam 8: Cost Estimation

Technology and complexity issues often lead management to simplify and to:

A range around the regression line within which the management accountant can rely that the actual value of the predicted cost will fall is referred to as:

________ is a statistical method for obtaining the unique cost-estimating equation that best fits a set of data points.

Sterling Glass Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year.What is the estimated total cost at an operating level of 150 hours?

Based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X). The following relationship was found: Y = $1,000 + $2X The $2 in the equation is an estimate of:

Which of the following is not a step in the typical cost estimation process?

Which one of the following cost estimation methods is the most accurate?

A data point that is outside the normal distribution of data is called an "outlier," which is often removed from the data before analysis because it:

Which of the following five steps (out of six) of cost estimation is out of order?

Pearson Electric Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year.How should the cost function be properly stated using the high-low method?

Cost Management and Strategy

Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

Basic Cost Management Concepts

Job Costing

Activity-Based Costing and Customer Profitability Analysis

Process Costing

Cost Allocation: Departments, Joint Products, and By-Products

Short-Term Profit Planning: Cost-Volume-Profit CVP Analysis

Strategy and the Master Budget

Decision Making With a Strategic Emphasis

Strategy and the Analysis of Capital Investments

Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing

Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial Performance Measures

Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

Operational Performance Measurement: Further Analysis of Productivity and Sales

The Management and Control of Quality

Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard

Strategic Performance Measurement: Investment Centers and Transfer Pricing

Management Compensation, Business Analysis, and Business Valuation

Filters