Question 1

When preparing cost estimates for account analysis purposes,should the costs be extracted from the historical accounting records?

Accepted Answer

Data in the historical accounting record

Question 2

What are "outliers" and what effect does their presence have when using regression analysis for cost estimation?

Accepted Answer

An outlier is a data point that lies a s

Question 3

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: $$\begin{array} { | l | r | r | } 
\hline \text { Month } & \text { Machine Hours } & \text { Electricity Costs } \
\hline \text { January } & 2,500 & 18,400 \
\hline \text { February } & 2,900 & 21,000 \
\hline \text { March } & 1,900 & 13,500 \
\hline \text { April } & 3,100 & 23,000 \
\hline \text { May } & 3,800 & 28,250 \
\hline \text { June } & 3,300 & 22,000 \
\hline \text { Juby } & 4,100 & 24,750 \
\hline \text { August } & 3,500 & 22,750 \
\hline \text { September } & 2,000 & 15,500 \
\hline \text { October } & 3,700 & 26,000 \
\hline \text { November } & 4,700 & 31,000 \
\hline \text { December } & 4,200 & 27,750 \
\hline
\end{array}$$ 
 
If the controller uses regression analysis to estimate costs,the estimate of the variable portion of electricity cost is:

Accepted Answer

A)  Cost = $11.70 × Machine-hours. 
B)  Cost = $0.93 × Machine-hours. 
C)  Cost = $5.77 × Machine-hours. 
D)  Cost = $0.49 × Machine-hours. 
A)  Cost = $11.70 × Machine-hours. 
B)  Cost = $0.93 × Machine-hours. 
C)  Cost = $5.77 × Machine-hours. 
D)  Cost = $0.49 × Machine-hours.

Question 4

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: $$\begin{array} { | l | r | r | } 
\hline \text { Month } & \text { Machine Hours } & \text { Electricity Costs } \
\hline \text { January } & 2,500 & 18,400 \
\hline \text { February } & 2,900 & 21,000 \
\hline \text { March } & 1,900 & 13,500 \
\hline \text { April } & 3,100 & 23,000 \
\hline \text { May } & 3,800 & 28,250 \
\hline \text { June } & 3,300 & 22,000 \
\hline \text { Juby } & 4,100 & 24,750 \
\hline \text { August } & 3,500 & 22,750 \
\hline \text { September } & 2,000 & 15,500 \
\hline \text { October } & 3,700 & 26,000 \
\hline \text { November } & 4,700 & 31,000 \
\hline \text { December } & 4,200 & 27,750 \
\hline
\end{array}$$ 
 
If the controller uses the high-low method to estimate costs,the variable cost per machine hour is:

Accepted Answer

A)  $6.25. 
B)  $6.90. 
C)  $5.77. 
D)  $11.70. 
A)  $6.25. 
B)  $6.90. 
C)  $5.77. 
D)  $11.70.

Question 5

Explain the difference between the engineering method of cost estimation and the account analysis method.

Accepted Answer

The engineering method is based on what

Question 6

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: $$\begin{array} { | l | r | r | } 
\hline \text { Month } & \text { Machine Hours } & \text { Electricity Costs } \
\hline \text { January } & 2,500 & 18,400 \
\hline \text { February } & 2,900 & 21,000 \
\hline \text { March } & 1,900 & 13,500 \
\hline \text { April } & 3,100 & 23,000 \
\hline \text { May } & 3,800 & 28,250 \
\hline \text { June } & 3,300 & 22,000 \
\hline \text { Juby } & 4,100 & 24,750 \
\hline \text { August } & 3,500 & 22,750 \
\hline \text { September } & 2,000 & 15,500 \
\hline \text { October } & 3,700 & 26,000 \
\hline \text { November } & 4,700 & 31,000 \
\hline \text { December } & 4,200 & 27,750 \
\hline
\end{array}$$ 
 
Based on the results of the high-low analysis,the estimate of electricity costs in a month with 2,200 machine hours would be:

Accepted Answer

A)  $15,375. 
B)  $22,825. 
C)  $15,180. 
D)  $16,427. 
A)  $15,375. 
B)  $22,825. 
C)  $15,180. 
D)  $16,427.

Question 7

Washington Products had costs of $600,000 when sales equaled 75,000 units.When sales increased by 25,000 units,costs increased by $125,000.The selling price is $9 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 80,000 units.

Accepted Answer

(a. )Costs = $225,000 + $5 × u

Question 8

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: 
$$\begin{array} { | l | r | } 
\hline \text { Average monthly c ustomer-visits } & 1,462 \
\hline \text { Average monthly total costs } & \$ 4,629 \
\hline \text {Regression Results } & \
\hline \text { Intercept } & \$ 1,496 \
\hline \text { bcoefficient } & \$ 2.08 \
\hline R ^ { 2 } & 0.86814 \
\hline
\end{array}$$

What is the percent of the total variance that can be explained by the regression equation? (CMA adapted)

Accepted Answer

A)  86.8% 
B)  31.6% 
C)  97.7% 
D)  71.9% 
A)  86.8% 
B)  31.6% 
C)  97.7% 
D)  71.9%

Question 9

The engineering method of determining cost behavior is particularly useful for new activities or products.

Accepted Answer

A) True 
 B)False

Question 10

Iowa Enterprises had an average cost of $10.75 during a month when 50,000 units were produced.When production doubled several months later,the average cost dropped to $8.25.Required:
(a. )Determine the fixed and variable portions of production costs.(b. )What will unit cost be when production equals 80,000 units?

Accepted Answer

(a. )total cost = $250,000 + $5.75 × uni

Question 11

One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions.

Accepted Answer

A) True 
 B)False

Question 12

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: $$\begin{array} { | l | r | r | } 
\hline \text { Month } & \text { Machine Hours } & \text { Electricity Costs } \
\hline \text { January } & 2,500 & 18,400 \
\hline \text { February } & 2,900 & 21,000 \
\hline \text { March } & 1,900 & 13,500 \
\hline \text { April } & 3,100 & 23,000 \
\hline \text { May } & 3,800 & 28,250 \
\hline \text { June } & 3,300 & 22,000 \
\hline \text { Juby } & 4,100 & 24,750 \
\hline \text { August } & 3,500 & 22,750 \
\hline \text { September } & 2,000 & 15,500 \
\hline \text { October } & 3,700 & 26,000 \
\hline \text { November } & 4,700 & 31,000 \
\hline \text { December } & 4,200 & 27,750 \
\hline
\end{array}$$ 
 
The percent of the total variance that can be explained by the regression is:

Accepted Answer

A)  0.965. 
B)  0.932. 
C)  0.925. 
D)  0.982. 
A)  0.965. 
B)  0.932. 
C)  0.925. 
D)  0.982.

Question 13

Which of the following is a common assumption of cost estimation?

Accepted Answer

A)  Cost behavior depends on many cost drivers. 
B)  Cost behavior patterns are nonlinear outside of the relevant range. 
C)  Cost behavior patterns are linear within the relevant range. 
D)  Costs are curvilinear. 
A)  Cost behavior depends on many cost drivers. 
B)  Cost behavior patterns are nonlinear outside of the relevant range. 
C)  Cost behavior patterns are linear within the relevant range. 
D)  Costs are curvilinear.

Question 14

Fast-food restaurants,like Taco Bell and McDonalds are known for high employee turnover,high qual­ity,and low costs.Using your knowledge of the learning phenomenon,how do these fast-food chains get high quality and low costs when they have so much employee turnover?

Accepted Answer

These chains use standardized

Question 15

In the learning curve equation Y = aXb,the "a" term represents:

Accepted Answer

A)  the labor time required to produce the first unit. 
B)  the labor time required to produce the last single unit. 
C)  the cumulative number of units. 
D)  the index of learning. 
A)  the labor time required to produce the first unit. 
B)  the labor time required to produce the last single unit. 
C)  the cumulative number of units. 
D)  the index of learning.

Question 16

Fromme's Frocks has the following machine hours and production costs for the last six months of last year: 
$$\begin{array} { | l | r | r | } 
\hline \text { Month } & \text { Machine Hours } & \text { Production Cost } \
\hline \text { July } & 15,000 & \$ 12,075 \
\hline \text { August } & 13,500 & 10,800 \
\hline \text { September } & 11,500 & 9,580 \
\hline \text { October } & 15,500 & 12,080 \
\hline \text { November } & 14,800 & 11,692 \
\hline \text { December } & 12,100 & 9,922 \
\hline
\end{array}$$
If Fromme expects to incur 14,000 machine hours in January,what will be the estimated total production cost using the high-low method?

Accepted Answer

A)  $8,750.00. 
B)  $11,142.50. 
C)  $22,400.00. 
D)  $10,889.10. 
A)  $8,750.00. 
B)  $11,142.50. 
C)  $22,400.00. 
D)  $10,889.10.

Question 17

Ballard Company incurred a total cost of $8,600 to produce 400 units of pulp.Each unit of pulp required five (5)direct labor hours to complete.What is the total fixed cost if the variable cost was $1.50 per direct labor hour?

Accepted Answer

A)  $1,700. 
B)  $3,000. 
C)  $5,600. 
D)  $8,000. 
A)  $1,700. 
B)  $3,000. 
C)  $5,600. 
D)  $8,000.

Question 18

Clough Company is interested in establishing the relationship between utility costs and machine hours.Data have been collected and a regression analysis prepared using Excel.The monthly data and the regression output follow:
 $\begin{array}{|l|r|r|}
\hline \text { Month } & \text { Machine } & \text { Electricity } \
& \text { Hours } & \text { Costs } \
\hline \text { January } & 3,250 & 22,080 \
\hline \text { February } & 3,770 & 25,200 \
\hline \text { March } & 2,470 & 16,200 \
\hline \text { April } & 4,030 & 27,600 \
\hline \text { May } & 4,940 & 33,900 \
\hline \text { June } & 4,290 & 26,400 \
\hline \text { July } & 5,330 & 29,700 \
\hline \text { August } & 4,560 & 27,300 \
\hline \text { September } & 2,600 & 18,600 \
\hline \text { October } & 4,810 & 31,200 \
\hline \text { Nowember } & 6,110 & 37,200 \
\hline \text { December } & 5,460 & 33,300 \
\hline
\end{array}$

Required:
(a. )What is the equation for utility costs using the regression analysis?
(b. )Does the variable "machine hours" have statistical significance? Explain.(c. )Prepare an estimate of utility costs for a month when 3,000 machine hours are worked.

Accepted Answer

(a. )$4,472.26 + $5.329 × mac

Question 19

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: $$\begin{array} { | l | r | r | } 
\hline \text { Month } & \text { Machine Hours } & \text { Electricity Costs } \
\hline \text { January } & 2,500 & 18,400 \
\hline \text { February } & 2,900 & 21,000 \
\hline \text { March } & 1,900 & 13,500 \
\hline \text { April } & 3,100 & 23,000 \
\hline \text { May } & 3,800 & 28,250 \
\hline \text { June } & 3,300 & 22,000 \
\hline \text { Juby } & 4,100 & 24,750 \
\hline \text { August } & 3,500 & 22,750 \
\hline \text { September } & 2,000 & 15,500 \
\hline \text { October } & 3,700 & 26,000 \
\hline \text { November } & 4,700 & 31,000 \
\hline \text { December } & 4,200 & 27,750 \
\hline
\end{array}$$ 
 
If the controller uses regression analysis to estimate costs,the estimate of the fixed portion of electricity cost is:

Accepted Answer

A)  Cost = $5.77. 
B)  Cost = $1,682.82. 
C)  Cost = $1,425.18. 
D)  Cost = $3,726.88 
A)  Cost = $5.77. 
B)  Cost = $1,682.82. 
C)  Cost = $1,425.18. 
D)  Cost = $3,726.88

Question 20

Balcom Enterprises is planning to introduce a new product that will sell for $110 a unit.Manufacturing cost estimates for 20,000 units for the first year of production are: • Direct materials $1,000,000
• Direct labor $720,000 (based on $18 per hour × 40,000 hours)
Although overhead has not be estimated for the new product,monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression.The analysis results are as follows:

$$\begin{array} { | l | l | } 
\hline \text { Dependent wariable } & \text { Factory overhead costs } \
\hline \text { Independent variable } & \text { Direct labor hours } \
\hline \text { Intercept } & \$ 120,000 \
\hline \text { Coefficient on independent } & \$ 5.00 \
\text { variable } &  \
\hline \text { Coefticient of correlation } & 0.911\
\hline \text { R } ^ { 2 } & 0.814\
\hline
\end{array}$$ 
Based on this information,what percentage of the variation in overhead costs is explained by the independent variable?

Accepted Answer

A)  24% 
B)  81.4% 
C)  91.1 % 
D)  9.7% 
A)  24% 
B)  81.4% 
C)  91.1 % 
D)  9.7%

When preparing cost estimates for account analysis purposes,should the costs be extracted from the historical accounting records?

What are "outliers" and what effect does their presence have when using regression analysis for cost estimation?

Explain the difference between the engineering method of cost estimation and the account analysis method.

The engineering method of determining cost behavior is particularly useful for new activities or products.

One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions.

Which of the following is a common assumption of cost estimation?

Fast-food restaurants,like Taco Bell and McDonalds are known for high employee turnover,high quality,and low costs.Using your knowledge of the learning phenomenon,how do these fast-food chains get high quality and low costs when they have so much employee turnover?

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

Ballard Company incurred a total cost of $8,600 to produce 400 units of pulp.Each unit of pulp required five (5)direct labor hours to complete.What is the total fixed cost if the variable cost was $1.50 per direct labor hour?

Cost Accounting: Information for Decision Making

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters

Exam 5: Cost Estimation

When preparing cost estimates for account analysis purposes,should the costs be extracted from the historical accounting records?

What are "outliers" and what effect does their presence have when using regression analysis for cost estimation?

Explain the difference between the engineering method of cost estimation and the account analysis method.

The engineering method of determining cost behavior is particularly useful for new activities or products.

One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions.

Which of the following is a common assumption of cost estimation?

Fast-food restaurants,like Taco Bell and McDonalds are known for high employee turnover,high qual­ity,and low costs.Using your knowledge of the learning phenomenon,how do these fast-food chains get high quality and low costs when they have so much employee turnover?

In the learning curve equation Y = aXb,the "a" term represents:

Ballard Company incurred a total cost of $8,600 to produce 400 units of pulp.Each unit of pulp required five (5)direct labor hours to complete.What is the total fixed cost if the variable cost was $1.50 per direct labor hour?

Cost Accounting: Information for Decision Making

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters

Fast-food restaurants,like Taco Bell and McDonalds are known for high employee turnover,high quality,and low costs.Using your knowledge of the learning phenomenon,how do these fast-food chains get high quality and low costs when they have so much employee turnover?

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