Exam 10: Analysis of Cost Behaviour

The managers of the production department have decided to use the production levels of 2013 and 2016 as examples of the highest and lowest years of operating levels. During 2013 the department used 280,000 litres of chemicals and during 2016 it used 240,000 litres. The department's costs for 2013 were $460,000, but only $400,000 in 2016. Required: Using the high-low method determine the cost estimating equation for the department if litres of direct material are used as the cost driver?

Answer the following question(s) using the information below. The Taranto Company uses the high-low method to estimate it's cost function. The information for the current year is provided below: -What is the slope coefficient per machine-hour?

The Brick Shirt House is concerned about its declining sales, especially the reduction in the number of customers. For the last two years its shirts have won industry awards for high quality and trend-setting styles. At the latest executive managers' meeting everyone was blaming everyone else for the decline. After much discussion, and the presenting of some fact-finding information, it was determined that sales relationships were the cause of most of the problems. Required:What may be some of the causes and how can the causes be detected if product quality is not an issue?

Match the description with the appropriate term. -Measures how large the value of the estimated coefficient is relative to its standard error.

Match the description with the appropriate term. -The implication that error terms are unaffected by the level of the cost driver.

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure. -Testing and inspecting of machinery

The managers of the production department have decided to use the production levels of 2014 and 2016 as examples of the highest and lowest years of operating levels. Data for those years are as follows: Required: Using the high-low method, determine the overhead cost equation for the department if litres of chemicals are used as the cost driver?

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure. -Warranty repairs

Carl Clarkson and Lenny Lenid have been assigned to review the costs of quality at the Sprotton Chemicals Ltd. for the month of September. All amounts are in thousands (000's). Some information from a competitor, Sheltonville Industries, has been leaked. You learn that Sheltonville's costs of quality (as a percentage of total costs of quality) is 15% on external failure, 20% on internal failure, 35% on appraisal and the rest on prevention. Required: a. Prepare a cost of quality report for September for the Sprotton Chemicals including calculations of each cost category as a percentage of total costs of quality. b. Compare Sprotton's approach to quality management to Sheltonville's. Comment on your findings. (What are the implications of the differences?)

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. -Technical support provided to suppliers

At the Christopher Company, the cost of the library and information centre has always been charged to the various departments based upon the number of employees. Recently, opinions gathered from the department managers indicated that the number of engineers might also be a predictor of personnel costs to be assigned. Total library and information costs are $150,000. Required: Using the above data, prepare a report that contrasts the different amounts of the library and information centre cost that would be allocated to each of the departments if the cost driver used is: a. number of employees. b. the number of engineers. c. Which cost estimation method is being used by Christopher Company?

Multicollinearity exists when which of the following conditions is present?

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. -Depreciation of test equipment

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure. -Rework direct manufacturing labour and overhead

A better database for estimating cost functions has the following characteristics.

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure. -Field testing

LaCrosse Products has a budget of $900,000 in 2016 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,000 in variable costs. The new method will require $40,000 in training costs and $100,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories. Required: a. What is the net change in the budget of prevention costs if the procedures are automated in 2016? Will management agree with the changes? b. How much will internal failure costs change if the internal product failures are reduced by 1/3 with the new procedures? c. How much do external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories.

Joe's Copy Centre hires a new employee. Joe knows he has to be patient with the employee until the employee gains enough experience to meet production standards. Joe is unsure of the learning curve in his operation, but he knows the first job by a new employee averages 40 minutes and the second job averages 32 minutes. Assume all jobs to be equal in size. Required: a. What is the learning-curve percentage, assuming the cumulative average-time method? b. What is the time for a new employee to do 32 jobs with this learning curve using the cumulative average-time method? You may use an index of -0.1520.

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure. -Expediting work to meet delivery schedule

Use the information below to answer the following question(s). The Monroe Company uses the high-low method to estimate the cost function. The information for the current year is provided below. -What is Monroe Company's slope coefficient per machine hour?