Exam 5: Cost Estimation

Describe the engineering method of cost estimation.Provide two advantages and two disadvantages associated with the engineering approach to cost estimation.

The following manufacturing costs were incurred by the Trinitram Company in 2015: Direct materials \ 112,500 Direct labor 175,000 Manufacturing overhead 235,000 These costs were incurred to produce 25,000 units of product.Variable manufacturing overhead was 80% of the direct materials cost.In 2016,the direct material and variable overhead costs per unit will increase by 15%,but the direct labor costs per unit are not expected to change.Fixed manufacturing costs are expected to increase by 7.5%.Required: (a. )Prepare a cost estimate for an activity level of 20,000 units of product in 2016.(b. )Determine the total product costs per unit for 2015 and 2016.

Which cost estimation method does not use the company's cost information as its primary source of information about the relationship between total costs and activity levels?

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

Which of the following is not a data problem an analyst must watch for when estimating cost behavior?

The Wonder Drug Company's total overhead costs at various levels of activity are presented below: Month Direct Labor Total Overhead September 15,000 \ 472,000 October 12,000 409,400 Nowember 18,000 542,000 December 21,000 604,700 Assume that the overhead costs above consist of indirect labor,scheduling salaries,and maintenance.The breakdown of these costs for the month of November is as follows: Indirect labor (V) \ 219,600 Maintenance (M) 197,400 Scheduling Salaries (F) 125,000 \ 542,000 Required: (a. )Using the high-low method,determine the cost formula for maintenance.(b. )Express the company's total overhead costs in linear equation form.

The controller of Fortnight Co.has requested a quick estimate of the manufacturing supplies needed for the Cleveland Plant for the month of July,when production is expected to be 470,000 units to meet the ending inventory requirements and sales of 475,000 units.Fortnight Co.'s budget analyst has the following actual data for the last three months. Month Procuction in Units Manufacturing Supplies March 450,000 \ 723,060 April 540,000 863,560 May 480,000 766,560 Using the high-low method to develop a cost estimating equation,the estimate of needed manufacturing supplies for July would be: (CMA adapted)

A manager is trying to estimate the manufacturing costs of a new product.The company makes several other products that utilize some of the same manufacturing procedures as the new product.Which cost estimation method would be the best method to determine the total cost of manufacturing the new product?

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 the high-low method to estimate costs,the cost equation for administrative salaries is:

Cost estimates using regression analysis are always more accurate and dependable than cost estimates using the scattergraph methods.