Exam 23: Cost Estimation and Cost Behaviour

Which of the following statements is TRUE about the learning curve?

Figure 23-2 The following information is available for maintenance costs: Month Production Volume Maintenance Costs January 75 £250 February 115 310 March 190 400 April 60 240 May 135 355 -Refer to Figure 23.2 in the above question. Using a computer or calculator, compute the estimate of maintenance costs at 100 units of production using the method of least squares. This value would be a.£291. b.£321. c.£336. d.£698.

The following computer printout estimated overhead costs using multiple regression: t for H(0) Std. error Parameter Estimate Parameter =0 P r >t of parameter Intercept 1000 1.96 0.0250 510.204 Setup hours 25 81.96 0.0001 0.305 \# of parts 100 9.50 0.0001 10.527 R Square 0.94 Standard Error 75.00 Observations 160 The model being measured is

The following information was available about supplies cost for the first three months of the year: Month Production Volume Supplies Cost January 4,800 £21,700 February 5,000 20,900 March 3,400 16,100 Using the high-low method, an estimate of supplies cost at 4,500 units of production would be

What does a correlation coefficient near -1 mean?

A coefficient of determination of 0.91 means

____ is a measure of the percent of variation in the dependent variable (such as total cost) that is explained by variations in the independent variable (such as total shipments) when the least-squares estimation equation is used.

What is the difference between a correlation equal to -1 and a correlation equal to 0?

In the formula Y = a + bx, bx refers to the

The coefficient of determination is

Given the cost function, Y = £10,000 + £4X, at what level of the activity cost drivers will total cost be £22,000?

Figure 23-2 The following information is available for maintenance costs: Month Production Volume Maintenance Costs January 75 £250 February 115 310 March 190 400 April 60 240 May 135 355 -Refer to Figure 23.2. Using a computer or calculator, compute the estimate of variable cost per unit of production using the method of least squares. Rounded to two decimal places, this value would be a.£3.21. b.£2.70. c.£1.31. d.£1.23.

Figure 23-3 Abboud Company is planning to introduce a new product with an 80 percent cumulative learning curve for production for batches of 1,000 units. The variable labour costs are £30 per unit for the first 1,000-unit batch. Each batch requires 100 hours. There are £10,000 in fixed costs not subject to learning. -Refer to Figure 23-3. What is the individual unit time (labour hours) to produce 2,000 units?

The following computer printout estimated overhead costs using linear regression: t for H(0) Std. error Parameter Estimate Parameter =0 P r >t of parameter Intercept 100.41 4.81 0.0003 20.88 DLH 14.05 6.78 0.0001 2.07 R Square 0.80 Standard Error 25.03 Observations 17 Table of Selected Values: t Distribution Degrees of Freedom 90\% 95\% 99\% 15 1.753 2.131 2.947 16 1.746 2.120 2.921 17 1.740 2.110 2.898 18 1.734 2.101 2.878 19 1.729 2.093 2.861 What is the interval around Y if 95 percent confidence is desired?

The following information was taken from a computer printout generated with the least-squares method for use in estimating overhead costs: Slope 45 Intercept 5,700 Correl ation coefficient 72 Activity variable Direct labour hours

When the method of least squares is used to fit an equation involving two or more explanatory or independent variables, the method is called

The percentage change in the dependent variable that is explained by the change in the independent variable is measured by the

In a simple least-squares regression where X refers to the number of sales calls made by a sales department and Y refers to the monthly total cost of the sales department, the R-squared in the regression output would represent:

Innova, SA., is beginning the production of a new product. Management believes that 500 labour hours will be required to complete the new unit. A 90 percent cumulative average-time learning curve model for direct labour hours is assumed to be valid. Data on costs are as follows: Direct materials £50,000 per unit Direct labour £20 per direct labour hour Variable manufacturing overhead £30 per direct labour hour a.Set up a table with columns for cumulative number of units, cumulative average time per unit in hours, and cumulative total time in hours using the cumulative average-time learning curve. Complete the table for 1, 2, 4, and 8 units. b.Set up a similar table assuming an 80 percent with the cumulative average-time learning curve. c.What is the difference in variable cost of producing four units?

The following computer printout estimated overhead costs using regression: t for H(0) Std. error Parameter Estimate Parameter =0 P r >t of parameter Intercept 100.41 4.81 0.0003 20.88 DLH 14.05 6.78 0.0001 2.07 R Square 0.80 Standard Error 25.03 Observations 17 What is the 95 percent confidence interval around the slope estimate?