Exam 3: Measurement of Cost Behavior

If regression analysis is used when measuring cost behavior, plotting the cost against each of the potential cost drivers is not necessary.

These costs are determined by management as part of the periodic planning process to meet the organization's goals

A company could temporarily reduce or eliminate:

Mixed costs contain elements of only fixed- cost behavior.

This method measures cost behavior according to what costs should be, not by what costs have been

The fixed costs required to achieve a desired level of production or to provide a desired level of service, while maintaining product or service attributes (e.g., quality), are:

An engineering cost analysis is often not timely.

Committed fixed costs can be altered by management if management decides that different levels of spending are desirable.

Peace Company makes metal signs for businesses and residences. These signs are made of sheet metal, which the owner paints by hand. The owner has a good sense of his labor and materials cost behavior, but he is concerned that he does not have good measure of other support costs. Currently, he predicts support costs to be 40% of the cost of materials. Close investigation of the business reveals that $10 per direct labor hour is a more plausible and reliable support cost relationship. Consider estimated support costs of the following two signs that Peace Company makes. Small Sign Large Sign Labor cost (p er hour) \ 200 \ 500 Direct labor hours 5 9 Number of components 8 10 The amount of support costs assigned to a small sign using number of components as the cost driver is:

A lower coefficient of determination is better than a higher one.

A cost function:

Presented below is the production data for the first six months of the year for the mixed costs incurred by Strongsville Company. Month Cost Units January \ 7,500 4,000 February 10,250 6,500 March 10,500 8,000 April 12,700 10,500 M ay 13,500 12,000 June 10,850 9,000 Strongsville Company uses the high- low method to analyze mixed costs. The total fixed cost (rounded to the nearest dollar) is:

Goodness of fit pertains to how well a cost function predicts cost behavior.

The following data has been assembled for VaVaVoom Company. Use the high- low method. Cost Hours \ 24,400 2,000 34,000 2,600 31,280 2,450 36,400 3,000 44,160 3,900 The total fixed cost is:

Roach Motel's cost function based on guest- days of occupancy for custodial cost is given as: Y = $60,000 + $5.50X. Roach Motel expects an occupancy level of 10,000 guest days. Roach Motel's expected total variable cost is:

The Partridge Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows: Indirect M aterials Cost Explained by Units Produced Constant \ 19,885 Standard error of Y estimate \ 7,560 R - squared 0.7832 No. of ob servations 22 Degrees of freedom 20 X coefficient(s) 9.75 Stand ard error of coefficient (s) 2.1876 The linear cost function is: $A$ ) $Y=$ $\$ 7,560+\$ 2.19 X$ $\text { B) } \mathrm{Y}=\$ 7,560+\$ 9.75 \mathrm{X}$ $\text { C) } \mathrm{Y}=\$ 19,885+\$ 9.75 \mathrm{X}$ $\text { D) None of theseanswers is correct }$ $\text { The linear cost function is: A) } Y=$ $\text { A) } \$ 7,560+\$ 2.19 \mathrm{X}$ $\text { B) } Y=\$ 7,560+\$ 9.75 \mathrm{X}$ $\text { C) } \mathrm{Y}=\$ 19.885+\$ 9.75 \mathrm{X}$ $\text { D) None of these answers is correct }$

The following three data points appear to be: Units Costs 100 \ 400 110 440 120 480

is the first step in estimating or predicting costs as a function of appropriate cost drivers.

Account analysis:

The method of measuring cost functions is the most subjective.