Exam 3: Cost Behavior

You decide The controller of Lamps Limited is concerned about the how much the company's costs have risen over the past few months.Since the majority of the company's costs are mixed,it is hard to tell if the increasing costs are due to variable costs or fixed costs.The controller asks that you research the different ways to separate mixed costs and then to present a report showing the advantages and disadvantages of each method.He would also like you to make a recommendation as to which method should be used.

Figure 3-12. The method of least squares was used to develop a cost equation to predict the cost of monthly equipment maintenance.The following computer output was received: The driver used was the number of machine hours. Refer to Figure 3-12.Using the cost formula for the equipment maintenance cost,what is the predicted cost of equipment maintenance for April assuming that 5,000 machine hours will be incurred in April?

Figure 3-7. Margola Company produces hand-held calculators.The company controller wanted to calculate the fixed and variable costs associated with the maintenance cost incurred by the factory.Data for the past four months were collected. Coefficients shown by a regression program are: Refer to Figure 3-7.Using the results of regression,calculate the fixed cost of maintenance.

Figure 3-7. Margola Company produces hand-held calculators.The company controller wanted to calculate the fixed and variable costs associated with the maintenance cost incurred by the factory.Data for the past four months were collected. Coefficients shown by a regression program are: Refer to Figure 3-7.Using the results of regression,calculate the variable rate of maintenance cost.

Figure 3-10. The following cost formula was developed using the monthly data for an accounting firm. Total cost = $87,100 + ($210 ´ number of tax returns) Refer to Figure 3-10.The term $210

Advantages of the method of least squares over the high-low method include all of the following except

The method of least squares

The percentage of variability in the dependent variable explained by an independent variable is called the ____________________________________.

Cost behavior analysis focuses on

Using a regression program,the term 'X Variable 1' refers to the dependent variable.

Cost relationships may change at output levels outside of the relevant range.

Margolo Company makes cross-country skis.The company controller wants to calculate the fixed and variable costs associated with janitorial services incurred by the factory.Data for the past six months were collected. Select the correct set of high and low months. High Low

A committed fixed cost

A fixed cost that management can easily decide to increase or decrease is known as a _________________.

Fixed costs are costs that in total remain constant within the relevant range as the level of output increases or decreases.

Which of the following would probably be a discretionary fixed cost for a law firm?

Harnow Company manufactures drill presses.Based on past experience,Harnow has found that its total overhead cost can be represented by the following formula: Total overhead cost = $35,500 + $1.25x,where x = number of machine hours.Last year Harnow incurred 120,000 machine hours. Required:

Determining cost behavior is not essential to planning,controlling,and decision making.

Discretionary fixed costs often involve a long-term contract.

The scatter-graph method