Exam 10: Determining How Costs Behave

South Coast Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2017 operations. Which cost estimation method is being used by South Coast Appliance Store?

A learning curve is a function that measures how labor-hours per unit decrease, as units of production decrease.

The incremental unit-time learning model with a 80% learning curve indicates that if it takes 150 minutes to manufacture the first unit of a new model, then the second unit will take only 120 minutes to manufacture.

Bennet Company employs 20 individuals. Eighteen employees are paid $18 per hour and the rest are salaried employees paid $3,000 a month. Which of the following is the total cost function of personnel?

Generally a coefficient of determination (r²) of 0.30 or higher passes a goodness of fit test.

Which of the following is a step followed by an analyst to overcome problems related to data collection for estimating cost function?

A flat or slightly sloped regression line indicates a strong relationship between the cost driver and costs.

When using the high-low method, the numerator of the equation that determines the slope is the ________.

Taunton Company uses the high-low method to estimate its cost function. The information for 2017 is provided below: What is the slope coefficient?

A learning curve is a function ________.

As a result of learning curve, ________.

June Lockett, controller, gathered data on overhead costs and direct labor-hours over the past 12 months. List and discuss the different approaches June can use to estimate a cost function for overhead costs using direct labor-hours as the cost driver.

The White Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. White Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. What is the estimated total cost at an operating level of 3,400 hours?

In the cumulative average-time learning model, cumulative average time per unit declines by a constant percentage each time the cumulative quantity of units produced doubles.

At the Wild Cat Group Company, the cost of the library and information center has always been charged to the various departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of engineers within a department might be a better predictor of library and information center costs. Total library and information center costs are $202,000. Which cost estimation method is being used by Wild Cat Group Company?

Regression analysis ________.

Which of the following is a learning-curve model?

Explain the difference between the cumulative average-time learning model and the incremental unit-time learning model.

Mountain Manufacturing Inc. ran its machines in March, a slow month, for 410 hours for a total cost of $63,000. In July, a peak month, the freezer ran for 756 hours for a total cost of $92,800. Required: a.What is the cost estimating 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 600 hours?

When management develops cost estimations, they must chose one method, such as industrial engineering, conference, account analysis, or quantitative analysis, and stay consistently with that method as each method is mutually exclusive of the others.