Exam 10: Analysis of Cost Behaviour

Andrew Pallet Co., Inc. manufactures pallets for various manufacturing companies. Each new employee takes 10 hours to make the first pallet and 8 hours to make the second. The manufacturing overhead charge per hour is $80. Required: a. What is the learning curve percentage assuming the cumulative average method? b. What is the time needed to build 8 pallets by a new employee using the cumulative average-time method? Assume the rate of learning factor is -0.1520. c. What is the time needed to produce the 16th pallet by a new employee using the incremental unit-time method? Assume the rate of learning factor is -0.3219.

Match the description with the appropriate term. -An alternative measure to the coefficient of determination (r²).

Compute the estimated costs for each of the following equations, assuming the following costs for July: In addition, state whether each is for a variable, fixed, or mixed cost. a. Total estimated costs = intercept b. Total estimated costs = constant c. Total estimated costs = constant + (slope × cost driver) d. Total estimated costs = slope coefficient × cost driver

A paper company manufactures cardboard boxes. Because the efforts of manufacturing are approximately equal between labour and machinery, management is considering other possible cost drivers. By considering different cost drivers, it is anticipated that the estimating process can be improved. The following cost estimating equations with their r, values have been determined for 2015: ‪ Required: a. Which equation should be selected for the analysis? b. What are other factors that should be included in the selection of the estimating equation?

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 the constant for the estimating cost equation?

Pam's Stables used two different independent variables (trainer hours and number of horses) in two different equations to evaluate the cost of training horses. The most recent results of the two regressions are as follows: Trainer's hours: R² = 0.56 Number of horses: R² = 0.63 What is the estimated total cost for the coming year if 16,000 trainer hours are incurred and the stable has 400 horses to be trained, based on the best cost driver?

Canevil Unlimited makes small motorcycles. The monthly demand ranges from 80 to 100 motorcycles. The average demand is 92 motorcycles. The plant operates 300 hours a month. Each cycle takes approximately 1.5 hours. If the company adds a new line of scooters, initial demand will be 20 per month. Each scooter will take 1 hour to make. To offset approaching production capacity, expanding the assembly line is possible. This will decrease manufacturing time for all products by 20 percent. However, this will increase the costs of cycles from $400 to $500 and scooters from $200 to $240. The change will also cause increases in prices from $700 to $750 for cycles and from $450 to $500 for scooters. Required: a. What is the average waiting time for cycles if they are the only item manufactured? b. What is the average waiting time if both cycles and scooters are produced and the assembly line is not enlarged? c. What is the average waiting time if both cycles and scooters are produced and the assembly line is enlarged? d. What is the expected monthly margin without scooters if the company sells all 92 cycles it manufactures? e. What are the expected monthly contribution margins if scooters are made with the current assembly line and with the new assembly line? Assume average sales and that sales equal production. f. What action do you recommend?

Each time Maiertree Care hires a new employee it must wait for some period of time before the employee can meet production standards. Management is unsure of the learning curve in its operations but it knows the first job by a new employee averages 60 hours and the second job averages 48 hours. 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 build 16 units with this learning curve using the cumulative average-time method? Assume the rate of learning factor is -0.1520.

Match the description with the appropriate term. -A measure of the serial correlation in the estimated residuals.

A Manufacturing Company uses two different independent variables in two different equations to evaluate the cost activities of the packaging department, machine-hours and number of packages. The most recent month's results of the two regressions are as follows: Machine hours: r² = 0.29 Number of packages: r² = 0.61 Required: a. What are the estimating equations for each cost driver? b. Which cost driver is best and why?

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. -Rework direct manufacturing labour and overhead

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. -Net cost of spoilage

Use the information below to answer the following question(s). Raymaster is a small computer software company which uses the account analysis method and has hired you to perform some management advisory services. The company sold 2,500 high quality payroll programs last year. -What is the total cost per unit sold?

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

The cost of the personnel department at the Miller Company has always been charged to the production departments based upon number of employees. Recently, opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned. Total personnel department costs are $120,000. Required: Using the above data, prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used is: a. number of employees. b. the number of new hires. c. Which cost estimation method is being used by Miller Company?

Use the information below to answer the following question(s). At the high point of the relevant range, labour hours at Bradco Restoration were 10,000 and wages were $22,500. At the low point of the relevant range, labour hours were 7,500 and wages were $17,500. -What is the high-low estimate of the labour costs at Bradco Restoration when 8,000 hours are used?

Craig's Cola was to manufacture 1,000 cases of cola next week. The accountant provided the following analysis of total manufacturing costs. R² = 0.82 What is the estimated cost of producing the 1,000 cases of cola?

Use the information below to answer the following question(s). The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable. Skip Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. -The cost function would be stated as

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

Tri-State Manufacturing expects to spend $800,000 in 2016 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $80,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $120,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product. Internal failure costs average $160 per failed unit of finished goods. During 2011, 5% of all completed items had to be reworked. External failure costs average $400 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used. Required: a. What is the net effect on appraisal costs for 2016, assuming the new receiving method is implemented and that 800,000 material units are received? b. How much will internal failure costs change, assuming 800,000 units of materials are received and that the new receiving method reduces the amount of UNACCEPTABLE product units in the manufacturing process by 10%?