Exam 10: Quantitative Analyses of Cost Functions

The managers of the production department have decided to use the production levels of 2009 and 2012 as examples of the highest and lowest years of operating levels. During 2009 the department used 280,000 litres of chemicals and during 2012 it used 240,000 litres. The department's costs for 2009 were $460,000, but only $400,000 in 2012. Required: Using the high-low method determine the cost estimating equation for the department if litres of direct material are used as the cost driver?

Brad Henry has just purchased the film studio of a movie company that specializes in action adventures. He found that the company did not try to estimate the cost of making a movie. Instead it just gave the producer a budget and told him/her to make a movie within budget. Mr. Henry does not like the former movie-budget concept and desires to establish a formal cost estimation system. Required: What are some of the potential problems that may be encountered in changing from a budget to a cost estimation movie-making system?

Cross-sectional data analysis includes

Use the information below to answer the following question(s). The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable. Skip Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. -The cost function would be stated as

Wimmer's Storage ran its freezer in February, a slow month, for 360 hours for a total cost of $57,600. In July, a peak month, the freezer ran for 720 hours for a total cost of $82,080. Required: a. Using the high-low method, determine the overhead cost equation for the department if hours of freezer use are used as the cost driver? b. What is the estimated total cost at an operating level of 500 hours?

A Manufacturing Company uses two different independent variables in two different equations to evaluate the cost activities of the packaging department, machine-hours and number of packages. The most recent month's results of the two regressions are as follows: Machine hours: r² = 0.29 Number of packages: r² = 0.61 Required: a. What are the estimating equations for each cost driver? b. Which cost driver is best and why?

A paper company manufactures cardboard boxes. Because the efforts of manufacturing are approximately equal between labour and machinery, management is considering other possible cost drivers. By considering different cost drivers, it is anticipated that the estimating process can be improved. The following cost estimating equations with their r, values have been determined for 2012: Required: a. Which equation should be selected for the analysis? b. What are other factors that should be included in the selection of the estimating equation?

C. M. Chain was to manufacture 1,000 chain saws next month. Its accountant has provided the following analysis of the total manufacturing costs. r² = 0.71 What is the estimated cost of producing the 1,000 chain saws?

The coefficient of determination (r²) measures the percentage of variation in Y explained by X (the predictor variable).

The Bhaskara Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows: Indirect Materials Cost Explained by Units Produced What is the linear cost function?

Use the information below to answer the following question(s). The Monroe Company uses the high-low method to estimate the cost function. The information for 2002 is provided below. -What is the high-low estimate of the labour costs at Bradco Restoration when 8,000 hours are used?

Use the information below to answer the following question(s). The Monroe Company uses the high-low method to estimate the cost function. The information for 2002 is provided below. -When using the high-low method, the denominator in the equation that determines the slope is the

Which of the following statements regarding a linear cost function is true?

Which cost estimation method typically uses qualitative analysis rather than quantitative analysis?

Write a cost estimating equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver. a. Direct manufacturing labour is $20 per hour. B) Direct materials cost $8.00 per cubic metre. C) Utilities have a minimum charge of $2,000 plus a charge of $0.05 per kilowatt hour. D) Factory supplies average $10 per day plus $1.00 for each machine-hour per day. E) Total manufacturing amortization includes $5,000 for straight-line plant amortization plus machinery amortization of $100 for each day operated.

When estimating cost functions, it is assumed that variations in total cost of a cost object cannot be explained by variations in a single cost driver.

For cost estimation purposes data must be collected using both time-series data and cross-sectional data.

List and briefly describe the five steps in estimating a cost function under quantitative analysis.

The managers of the production department have decided to use the production levels of 2010 and 2012 as examples of the highest and lowest years of operating levels. Data for those years are as follows: Required: Using the high-low method, determine the overhead cost equation for the department if gallons of chemicals are used as the cost driver?

Use the information below to answer the following question(s). The Monroe Company uses the high-low method to estimate the cost function. The information for 2002 is provided below. -When using the high-low method, the two observations used are the high and low observations of the