Exam 5: Cost Estimation

Yates Corp.wants to develop a cost equation for its administrative costs.The controller believes the appropriate cost driver is units produced.Last year's data are presented below: Month Units produced Aoministrative Costs January 32,500 \ 24,288 February 37,700 27,720 March 24,700 17,820 April 40,300 30,360 May 49,400 37,290 June 42,900 29,040 July 53,300 32,670 August 45,500 30,030 September 26,000 20,460 October 48,100 34,320 November 61,100 40,920 December 54,600 36,630 Total 516,100 \ 361,548 Average 43,008 \ 30,129 Required: (a. )What is the equation for administrative costs using the high-low method? (b. )Prepare an estimate of administrative costs for a month when 30,000 units are produced.

Southside Hospital is trying to get a better idea of the costs in its cardiac surgical unit.Unit cost data for supplies,labor,etc.have been collected for a three-year period.After analyzing the data using Excel,the following output was generated,based on 1,500 procedures.Intercept = $2,169,000 Coefficient on procedures $972 Correlation coefficient = .448 R² = .189 The controller asks you for advice on whether to rely on this estimate.Based on the output,what would you say?

In the learning curve equation Y = aX^b,the "b" term represents:

Doran Products had costs of $950,000 when sales equaled 55,000 units.When sales increased to 85,000 units,total costs increased to $1,400,000.The selling price is $21 per unit.Required: (a. )Determine the fixed and variable portions of costs.(b. )Prepare a contribution margin income statement for a month with sales of 70,000 units.

The Feline Company has been having some difficulties estimating its manufacturing overhead costs.In the past,manufacturing overhead costs have been related to production levels.However,some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs.In order to investigate this possibility,the company collected information on its monthly manufacturing overhead costs,production in units,and average production lot size for 2016. Month Production (Units) Manufacturing Ovenead Cost Average Monthly Production Lot Size 1 75,000 \ 925,800 20 2 90,000 843,875 19 3 65,000 910,125 24 4 80,000 946,000 19 5 55,000 879,000 24 6 50,000 825,000 18 7 85,000 960,000 22 8 105,000 1,053,500 25 9 102,000 1,020,000 23 10 68,000 905,000 20 11 75,000 938,000 22 12 95,000 995,000 24 Required: (a. )Use the high-low method to estimate next month's manufacturing overhead costs,assuming the company is planning to produce 92,000 units.(b. )Use the high-low method to estimate next month's manufacturing overhead costs,assuming the company is planning to run a 21-lot size.

The account analysis method is more subjective than other cost estimation methods because it relies heavily on the personal judgment and experience of accountants.

The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development.One cost that is being looked at closely is administrative costs as a function of student credit hours.Data on administrative costs and credit hours for the past thirteen months are shown below: Month Actinistrative Costs Credit Hours July \ 129,301 250 August 82,613 115 September 225,580 1,392 October 216,394 1,000 November 258,263 1,309 December 184,449 1,112 January 219,137 1,339 February 245,000 1,373 March 209,462 1,064 April 191,925 1,123 May 249,978 1,360 June 170,418 420 July 128,167 315 Total \ 2,510,687 12,172 Average \ 193,130 936 The controller's office has analyzed the data and has given you the results from the regression analysis: If the controller uses regression analysis to estimate costs,the estimate of the variable portion of administrative salaries is:

Argo Company ran a regression analysis using direct labor hours as the independent variable and manufacturing overhead costs as the dependent variable.The results are summarized below: Intercept \ 14,600 Slope \ 12.55 Correlation coefficient .931 R-squared .867 Argo is planning on operating at a level that would require 12,000 direct labor hours per month in the upcoming year. Required: (a. )Use the information from the regression analysis to write the cost estimation equation for the manufacturing overhead costs. (b. )Compute the estimated manufacturing overhead costs per month for the upcoming year.

In the standard regression equation of y = a + bx,the letter a is best described as the:

Brewsky's is a chain of micro-breweries.Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patron­izing the stores.Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows: Average monthly customer-visits 1,462 Average monthly total costs \ 4,629 Regression Results Intercept \ 1,496 b coefficient \ 2.08 0.86814 Based on the data derived from the regression analysis,what are the estimated costs for 1,600 customer-visits in a month? (CMA adapted)

Which of the following cost estimation methods finds the variable portion of a mixed cost before calculating the fixed portion?

Thane Company is interested in establishing the relationship between electricity costs and machine hours.Data have been collected and a regression analysis prepared using Excel.The monthly data and the regression output follow: Month Machine Hours Electricity Costs January 2,500 18,400 February 2,900 21,000 March 1,900 13,500 April 3,100 23,000 May 3,800 28,250 June 3,300 22,000 Juby 4,100 24,750 August 3,500 22,750 September 2,000 15,500 October 3,700 26,000 November 4,700 31,000 December 4,200 27,750 The correlation coefficient for the regression equation for electricity costs is:

The McGraw Company is accumulating data to be used 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 that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs.Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted) What is the variable cost per hour using the high-low method to estimate the cost equation?

In general,the account analysis method focuses on the underlying relationship between cost and activities from the previous period.

In determining cost behavior in business,the cost function is often expressed as Y = a + bX.Which one of the following cost estimation methods should not be used in estimating fixed and variable costs for the equation? (CMA adapted)

In the cost equation TC = F + VX,V is best described as the:

In general,cost behavior results are likely to differ between the engineering method and the account analysis method.

The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development.One cost that is being looked at closely is administrative costs as a function of student credit hours.Data on administrative costs and credit hours for the past thirteen months are shown below: Month Actinistrative Costs Credit Hours July \ 129,301 250 August 82,613 115 September 225,580 1,392 October 216,394 1,000 November 258,263 1,309 December 184,449 1,112 January 219,137 1,339 February 245,000 1,373 March 209,462 1,064 April 191,925 1,123 May 249,978 1,360 June 170,418 420 July 128,167 315 Total \ 2,510,687 12,172 Average \ 193,130 936 The controller's office has analyzed the data and has given you the results from the regression analysis: Based on the results of the regression analysis,the estimate of administrative costs in a month with 1,000 credit hours would be: (rounded to the nearest whole dollar)

Yates Corp.wants to develop a cost equation for its administrative costs.The controller believes the appropriate cost driver is units produced.Last year's data are presented below: Month Units produced Acministrative Costs January 32,500 \ 24,288 February 37,700 27,720 March 24,700 17,820 April 40,300 30,360 May 49,400 37,290 June 42,900 29,040 Juby 53,300 32,670 August 45,500 30,030 September 26,000 20,460 October 48,100 34,320 November 61,100 40,920 December 54,600 36,630 Required: (a. )What is the equation for administrative costs using the regression analysis? (b. )Does the variable "units produced" have statistical significance? Explain.(c. )Prepare an estimate of administrative costs for a month when 30,000 units are produced.

One advantage that regression techniques have over other cost estimation methods is it generates information that can be used to determine how well the estimated cost equation will predict future costs.