Exam 10: Determining How Costs Behave

In multiple regression, when two or more independent variables are highly correlated with one another, the situation is known as ________.

Quantum Company uses the high-low method to estimate the cost function. The information for 2017 is provided below: What is the estimated total cost when 450 machine-hours are used?

Presented below are the production data for the first six months of the year for the mixed costs incurred by Venus Company. Venus Company uses the high-low method to analyze mixed costs. What is the estimated total cost at an operating level of 6,300 units?

The vertical difference, called the residual term, measures the distance between actual cost of one period and estimated cost of the next period.

The managers of the production department have decided to use the production levels of 2017 and 2018 as examples of the highest and lowest years of operating levels. Data for those years are as follows: Required: What is the cost estimating equation for the department if gallons of chemicals are used as the cost driver?

The cost components of a heater include $35 for the compressor, $11 for the sheet molded compound frame, and $74 per unit for assembly. The factory machines and tools cost is $55,000. The company expects to produce 1,300 heaters in the coming year. What cost function best represents these costs?

Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver. a.Direct materials cost is $2.70 per pound b.Total cost is fixed at $800 per month regardless of the number of units produced. c.Auto rental has a fixed fee of $90.00 per day plus $1.75 per mile driven. d.Machine operating costs include $1,000 of maintenance per month, and $15.00 of coolant usage costs for each day the machinery is in operation.

In a graphical display of a cost function, the steepness of a line represents the total amount of fixed costs.

Taunton Company uses the high-low method to estimate its cost function. The information for 2017 is provided below: What is the estimated total cost when 1,900 machine-hours are used?

Goodness of fit has meaning only if the relationship between the cost drivers and costs is economically plausible.

What are the three criteria a company should use to evaluate and choose a cost driver? Briefly explain each of the three criteria.

List and briefly describe the six steps in estimating a cost function under quantitative analysis.

The larger the vertical difference between actual costs and predicted costs the better the goodness of fit.

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 $213,000. If the number of employees is considered the cost driver, what amount of library and information center costs will be allocated to Department A? (Round any intermediary calculations to two decimal places and your final answer to the nearest dollar.)

As part of his job as cost analyst, John Kelly collected the following information concerning the operations of the Machining Department: Required: a.Use the high-low method to determine the estimating cost function with machine-hours as the cost driver. b.If June's estimated machine-hours are 4,300, calculate the total estimated costs of the Machining Department?

Variable cost per labor-hour is $0.82 Fixed cost is $18,500. Machine hours during the period are 90. Calculate the total cost for 360 labor hours.

In regression analysis, the term "goodness of fit" indicates the strength of the relationship between the cost driver and the costs.

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

High Tech Manufacturing Inc., incurred total indirect manufacturing labor costs of $490,000. The company is labor intensive. Total labor hours during the period were 4,100. Using qualitative analysis, the manager and the management accountant determine that over the period the indirect manufacturing labor costs are mixed costs with only one cost driver-labor-hours. They separated the total indirect manufacturing labor costs into costs that are fixed ($120,000 based on 8,600 hours of labor) and costs that are variable ($370,000) based on the number of labor-hours used. The company has estimated 7,300 labor hours during the next period. Which of the following represents the correct linear cost function?

Which cost estimation method uses time-and-motion studies to reveal that to make a high quality men's suit jacket , it takes of 3 hours of direct labor effort per jacket and 5 minutes of a salaried manager to perform quality control?