Exam 10: Analysis of Cost Behaviour

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. -Analysis of the cause of defects in production

Aunt Lydia's Cookies, Inc., prepares frozen gourmet cookies for shipment to upscale grocery stores as well as mailing to web and catalog customers. The company has two workstations, cooking and distribution. The cooking station is limited by the cooking time of the food. Distribution is limited by the speed of the workers. Distribution normally waits on food from cooking. Because the demand has increased in recent months to 4,000 dozen cookies, management is considering adding another oven in the cooking station or else having the cooks start to work earlier. The monthly cost of operating the cooking station one more hour each day is $1,500. The cost of adding another cooking station would add an average of $8 per hour. The current operating hours total eight hours a day, 24 days a month. The contribution margin of the finished products is currently $2 per dozen. Inventory carrying costs average $0.50 per dozen per month. Either the extra hour or the new cooking station would increase production by 50 dozen a day, with a long-run increase of 100 dozen units in finished goods inventory to 500 dozen. Required: a. What is the total production per month if the change is made? b. What is the increase in the expected monthly product contribution for each of the possible changes? Assume long-run production equals sales. c. What course of action would you recommend?

Match the description with the appropriate term. -Measures the percentage of variation in Y (the dependent variable) explained by X (the independent variable).

What is the predicted indirect manufacturing labour cost if 160 machine-hours are budgeted and 170 are actually worked, assuming the estimated cost function is y = $81.04 + 5.32x?

Match the description with the appropriate term. -A constant variance of the residuals.

The ideal database for estimating cost functions has two characteristics: 1. The database should contain numerous reliably measured observations of the cost driver (the independent variable) and the related costs (the dependent variable). 2. It includes values for the independent variable over a wide range. Unfortunately, management accountants rarely have the advantage of working with a database that has both characteristics. Required: Following are a list of data problems that may be encountered. Select three, then for each selection describe the describe the cause/effect of the problem and provide a remedy. 1. The time period for measuring the dependent variable does not match the period for measuring the independent variable. 2. Fixed costs are allocated as if they were variable. 3. Data are either unavailable for all observations or not uniformly available. 4. Extreme values of observations, or outliers, occur when recording costs. 5. There is no causal, economically plausible relationship between the individual cost items in a heterogeneous mixed pool and a single cost driver. 6. Inflation affects the dependent variable, the independent variable(s), or both.

Nidek manufactures sport swear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure. -Disposal of spoiled work in process

Quick Shop Printing has two workstations, cutting and pasting. The cutting station is limited by the speed of operating the cutting machine. Pasting is limited by the speed of the workers. Pasting normally waits on work from cutting. Each department currently works an eight-hour day. The company is considering having cutting begin work two hours earlier than pasting each day, the two departments would then finish their work at the same time. Not only does this eliminate the bottleneck, but it increases finished units produced each day by 80 units. All units produced can be sold even though the change increases inventory stock by 10 percent from 200 units. The cost of operating the cutting department two more hours each day is $800. The contribution margin of the finished products is $3 each. Inventory carrying costs are $0.20 per unit per day. What is the change in the daily contribution margin if the change is made?

Wimmer's Storage ran its freezer in February, a slow month, for 360 hours for a total cost of $57,600. In July, a peak month, the freezer ran for 720 hours for a total cost of $82,080. Required: a. Using the high-low method, determine the overhead cost equation for the department if hours of freezer use are used as the cost driver? b. What is the estimated total cost at an operating level of 500 hours?

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 estimate of Monroe's cost function when 200 machine hours are used?

Brix, Inc. prepares frozen food for fast-food restaurants. It has two workstations, cooking and assembly. The cooking station is limited by the cooking time of the food. Assembly is limited by the speed of the workers. Assembly normally waits on food from cooking. Because the demand has increased in recent months to 2,800 dozen units, management is considering adding another cook station or else having the cooks start to work earlier. The monthly cost of operating the cooking station one more hour each day is $2,400. The cost of adding another cook station would add an average of $10 per hour. The current operating hours total eight hours a day, 22 days a month. The contribution margin of the finished products is currently $8 per dozen. Inventory carrying costs average $2.00 per dozen per month. Either the extra hour or the new cook station would increase production by 20 dozen a day with a long-run increase of 80 dozen units in finished goods inventory to 280 dozen. Required: a. What is the total production per month if the change is made? b. What is the increase in the expected monthly product contribution for each of the possible changes? Assume long-run production equals sales.

Brown Laundry has a variable demand. The daily demand ranges from 100 to 140 customers a day with an average of 5 items. The average daily demand is 110 customers. The laundry operates 10 hours a day. Each order takes approximately 5 minutes. Required: a. What is the average customer waiting time in minutes? b. What is the cycle time for an order? c. The manager has decided that the waiting time is too long and has increased the work day to 11 hours. What is the waiting time now? Will the customers be any happier?

Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Windsor, Ontario. The automated system is in its first year of operation and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes. For the first six months of operations, the following data were collected: Required: a. Use the high-low method to determine the estimating cost function with machine-hours as the cost driver. b. Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost driver. c. For July, the company ran the machines for 3,150 hours and used 4,180,000 kilowatt-hours of power. The overhead costs totaled $114,000. Which cost driver was the best predictor for July?

Match the description with the appropriate term. -A systematic pattern in the sequence of residuals.

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. -Using the high-low method determine the slope coefficient per labour hour at Bradco Restoration?

The annual capacity of a machine is 12,000 hours, with the balance being taken for routine maintenance. It takes 10 hours to process one job (each job = 1 batch),. Altogether, there are seven employees who operate the machine at different times. Orders for the first six months of the year, which are typical, have averaged 50 jobs per month. The company expects 300 orders over the next six months. Which of the following is TRUE?

Sof-T, Inc. manufactures foam products for upholstery companies. It has two workstations, mixing/heating and cutting/assembly. The mixing/heating station is limited by the capacity of the equipment. Cutting/assembly is limited by the speed of the cutting machine workers. Cutting/assembly normally lags behind mixing/heating. Because the demand has increased in recent months, management is considering adding another person to cutting/assembly. This would increase the department's costs by $4,000 a month. If the person is moved from mixing/heating, that department's cost would decline by $3,000. By keeping mixing/heating labourers the same, the department can increase production on-call by 10 percent. Current idle time in mixing/heating averages one-half person a day for a net cost of $1,400 a month. Required: a. What is the net effect of moving the employee from mixing/heating to cutting/assembly? b. What is the net effect if a new employee is hired for cutting/assembly?

Match the description with the appropriate term. -The testing of the assumptions of regression analysis.

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. -Plant utilities in the inspection area

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. -Lost sales arising from a reputation for poor quality