Exam 8: Cost Estimation

A manager uses regression to express sales as a function of advertising expenditures (X1), and per capita income (X2) in your sales area. The following multiple linear regression equation is developed: Y = 10 + 0.51X1 + 0.45X2 The coefficient of determination is 0.96 Determine which of the following conclusions is valid regarding the coefficient of determination:

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, total monthly fixed cost is calculated to be:

Simple regression analysis involves the use of:

Midgett 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. The accounting staff suggested that linear regression be employed 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 are as follows:Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent) r = 0.99743 r² = 0.99487 Using the high-low method, total monthly fixed cost is calculated to be (round to nearest dollar):

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 relationship is:

The objective of the fourth step in cost estimation, graphing the data, is intended to:

Nellibell's Café bakes croissants that are sold to local restaurants and grocery stores in the Columbia, South Carolina area. When 600 croissants are baked, the average cost is $0.70. When 720 croissants are baked, the average cost is $0.65. What is the total cost when 670 croissants are baked?

High-low and regression cost estimation methods are alike in that they both:

The following costs were for Bikeway Inc., a bicycle manufacturer that uses the high-low method:At an output level of 1,000 bicycles, per unit variable cost is calculated to be:

A retailer, in business for over 50 years, has developed the following regression model from the past 60 months of operating data: Monthly sales dollars = $50,000 + $4.70A + $30B − $1,000X Where: A = number of customers B = advertising dollars per month X = 1 if a winter month X = 0 if other months An appropriate interpretation of this model is that:

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:At 400 hours of activity, Armer management can be approximately two-thirds confident that the maintenance costs will be in the range of

Regression analysis is better than the high-low method of cost estimation because regression analysis:

Condor Airplane Company has built a new model jet aircraft which it intends to sell to high net worth clients. This aircraft required 25,000 hours to complete. Condor believes an incremental unit-time learning model with an 82% learning curve best reflects the company's production efficiency. Condor just received a contract to make fifteen identical aircraft. What will be the expected unit time for the sixteenth aircraft?

The coefficient of determination is a number between:

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:Based on the data derived from the regression analysis, 420 maintenance hours in a month mean that maintenance costs should be budgeted to the nearest dollar at

Which of the following is required for multiple regression?

Two aspects to consider when selecting the time period for cost estimation are:

Which one the following is a variable that takes on values of 1, 2, 3, … for each period in sequence?

Patterson Equipment Inc.produced a pilot run of 20 units of a recently developed motor used in the finished products.The pilot run required an average of 12 direct labor hours per motor.Patterson has an eighty percent learning curve on the direct labor hours needed to produce new motors. Required: Calculate the average direct labor hours per unit for the first 640 motors (including the pilot run) produced.

As a preliminary step in the selection of variables to use in a statistical-forecasting model, the management accountant has calculated the coefficient of correlation between the firm's sales and three economic indexes. The results were as follows: Index Coefficient of Correlation A .105 B -.009 C -.854 Which of the following statements indicates the best course of action for the auditor to take in the development of a forecasting model?