Question 1

A cost driver is defined as: (CMA adapted)

Accepted Answer

A)  the largest cost in a manufacturing process. 
B)  a fixed cost that cannot be avoided. 
C)  the significant factor in developing a new product. 
D)  a causal factor that increases the total cost of a cost objective.

Question 2

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:
$\begin{array}{lll}
\text {Month}&\text {Machine Hours}&\text {Electricity Costs}\
\text { January } & 2,500 & \$ 18,400 \
\text { February } & 2,900 & 21,000 \
\text { March } & 1,900& 13,500 \
\text { April } & 3,100 & 23,000 \
\text { May } & 3,800& 28,250 \
\text { June } & 3,300& 22,000 \
\text { July } & 4,100 & 24,750\
\text { August } & 3,500 & 22,750 \
\text { September } & 2,000 & 15,500 \
\text { October } & 3,700 & 26,000 \
\text { November } & 4,700 & 31,000 \
\text { December } & 4,200 & 27,750
\end{array}$

$$\begin{array}{c} 
{ \text { Summary Output } } \
  { \text { Regression Statistics } } \
\begin{array}{ | l | c | } 
\hline \text { Multiple R } & 0.965 \
\hline \text { R Squuare } & 0.932 \
\hline \text { Adjusted R } ^2 & 0.925 \
\hline \text { Standard Error } & 1,425.18 \
\hline \text { Observations } & 12.00 \
\hline
\end{array}\end{array}$$

$\begin{array}{|l|r|r|r|r|r|r|}
\hline && \text { Standard } & && \text { Lower } & \text { Upper } \
&\text { Coefficients } & \text { Error } & \text { t Stat } & \text { P-value } & 95 \% & 95 \% \ 
\hline \text { Intercept } & 3,726.88 & 1,682.82 & 2.21 & 0.05 & (22.69) & 7,476.45 \
\hline \text { Machine } & 5.77 & 0.49 & 11.7 & 0.00 & 4.67 & 6.87 \
\text { Hours } & & & & & \
\hline
\end{array}$

-
If the controller uses the high-low method to estimate costs, the cost equation for electricity costs is:

Accepted Answer

A)  Electricity Costs = $3,726.88 + ($5.77 × Machine-hours). 
B)  Electricity Costs = $1,625.00 + ($6.25 × Machine-hours). 
C)  Electricity Costs = $6.90 × Machine-hours. 
D)  Electricity Costs = $22,825.

Question 3

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) $$\begin{array} { l r c } 
& \begin{array} { c } 
\text { Hours of } \
\text { Activity }
\end{array} & \begin{array} { c } 
\text { Maintenance } \
\text { Costs }
\end{array} \
\text { January } & 480 & \$ 4,200 \
\text { February } & 320 & 3,000 \
 \text { March } & 400 & 3,600 \
\text { April }& 300 & 2,820 \
\text { May }  & 500 & 4,350 \
\text { June }& 310 & 2,960 \
\text { July }  & 320 & 3,030 \
\text { August } & 520 & 4,470 \
\text { September } & 490 & 4,260 \
\text { October } & 470 & 4,050 \
\text { November } & 350 & 3,300 \
\text { December }& 340 & 3,160 \
 \text { Sum } & 4,800 & \$ 3,200 \
 \text { Average }& 400 & 3,600 \
\text { A coefficient } & & 684.65 \
\text { B coefficient } & & 7.2884 \
\text { Standard error of the a coefficient } & 49.515 & \
\text { Standard error of the b coefficient } & 0.12126 & \
\text { Standard error of the estimate } & & 34.469 \
\mathrm { R } ^ { 2 } & & 0.99724 \
\text { T-value a } & & 13.827 \
\text { T-value b } & & 60.105
\end{array}$$  
-Using the high-low method to estimate cost behavior, 420 maintenance hours in a month would mean the maintenance costs would be budgeted at:

Accepted Answer

A)  $3,150. 
B)  $3,600. 
C)  $3,720. 
D)  $3,780.

Question 4

One disadvantage of the high-low method is the highest and lowest points may not be representative of normal operating activities.

Accepted Answer

A) True 
 B)False

Question 5

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?

Accepted Answer

A)  Engineering estimates. 
B)  Regression analysis. 
C)  Account analysis. 
D)  Scattergraph.

Question 6

Your manager asks you for a cost estimate to open a new retail outlet and says, "I want you to use statistical analysis, so it will be objective because it is based on real data." How would you respond?

Accepted Answer

The answer of Your manager asks you for a cost...

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

The answer of Fast-food restaurants, like Taco Bell and McDonalds,...

Question 9

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)

Accepted Answer

A)  Scattergraph method. 
B)  Simple regression. 
C)  High and low point method. 
D)  Management analysis of data.

Question 10

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:
$\begin{array}{llr}
  \text { Average monthly customer visits } &&1,462\
 \text { Average monthly total costs } &&\$4,629\
& \text {  Regression Results} &\
 \text { Intercept } &&\$1,496\
 \text { b  coefficient } &&\$2.08\
 \text { R  }^{2} &&0.86814\
\end{array}$

-
In a regression equation expressed as y = a + bx, how is the letter x best described? (CMA adapted)

Accepted Answer

A)  Fixed costs per each customer-visit. 
B)  The observed store costs for a given month. 
C)  The estimate of the number of new customer visits for the month. 
D)  The observed customer visits for a given month.

Question 11

The Macon Company uses the high-low method to determine its cost equation. The following information was gathered for the past year:
$$\begin{array} { l c c } 
& \text { Machine } & \text { Direct Labor } \
 & \text { Hours } & \text { Costs } \
 \text { Busiest month (June) }& 14,000 & \$ 2 0 0 , 0 0 0  \
\text { Slowest month (December) }& 6,000 & \$ 120,000
\end{array}$$
-
What are the direct labor costs per machine hour?

Accepted Answer

A)  $20.00. 
B)  $16.00. 
C)  $14.29. 
D)  $10.00.

Question 12

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

Accepted Answer

The answer of Describe the engineering method of cost estimation....

Question 13

Fromme's Frocks has the following machine hours and production costs for the last six months of last year:
$\begin{array}{lrr}
&\text { Machine }\
\text {Month}&\text {Hours}&\text {Production Coption}\
\text { July } & 15,000 & \$ 12,075 \
\text { August } & 13,500 &  10,800\
\text { September } & 11,500& 9,580\
\text { October } & 15,500 & 12,080\
\text { November } & 14,800& 11,692 \
\text { December } & 12,100 & 9,922
\end{array}$

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.

Question 14

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.
$\begin{array}{llr}
&\text { Production in }\
\text {Month}&\text {Units}&\text { Manufacturing Supplies}\
\text { March } & 450,000 & \$ 723,060\
\text { April } & 540,000 & 853,560\
\text { May } & 480,000 & 766,560
\end{array}$

Using the high-low method to develop a cost estimating equation, the total estimated cost of needed manufacturing supplies for July would be: (CMA adapted)

Accepted Answer

A)  $681,500. 
B)  $688,750. 
C)  $749,180. 
D)  $752,060.

Question 15

Assume that as part of their recent merger, Dell and EMC are perfecting a new device that will access and coordinate the internet of things. The new company is interested in estimating the impact of learning on the cost of producing this new device and plan to use data from previous products to estimate the learning parameter. What are the advantages of doing this? What are the disadvantages?

Accepted Answer

The answer of Assume that as part of their recent...

Question 16

Which of the following cost estimation methods is based on two cost observations?

Accepted Answer

A)  Engineering approach. 
B)  High-low method. 
C)  Account analysis. 
D)  Linear regression.

Question 17

Which of the following may be used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of the material handled? (CPA adapted)

Accepted Answer

A)  Economic order quantity analysis. 
B)  Probability analysis. 
C)  Correlation analysis. 
D)  Multiple regression analysis.

Question 18

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

Accepted Answer

The answer of Explain the difference between the engineering method...

Question 19

Markham, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 30%. Markham found that the first unit of a new product required 90 hours to complete. The second unit was completed using only 76.5 hours. Markham believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $40/hour. The following factors are available for various rates of learning: 80% learning, b = ?0.3219; 85%, b = ?0.2345; 90%, b = ?0.1520; 95%, b = ?0.0740.
Required:
(a.) What will the total labor cost be for the contract?f
(b.) What will be the total fee for the contract?

Accepted Answer

The answer of Markham, Inc. has received a contract for...

Question 20

The quality of the cost equation depends on collecting appropriate data.

Accepted Answer

A) True 
 B)False

Exam 5: Cost Estimation

A cost driver is defined as: (CMA adapted)

One disadvantage of the high-low method is the highest and lowest points may not be representative of normal operating activities.

Your manager asks you for a cost estimate to open a new retail outlet and says, "I want you to use statistical analysis, so it will be objective because it is based on real data." How would you respond?

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

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 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)

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

Which of the following cost estimation methods is based on two cost observations?

Which of the following may be used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of the material handled? (CPA adapted)

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

The quality of the cost equation depends on collecting appropriate data.