Exam 6: Activity Analysis, Cost Behaviour, and Cost Estimation

Zurbrigg Copy Solutions presently leases a copy machine under an agreement that calls for a fixed fee each month and a charge for each copy made. Zurbrigg made 9,000 copies and paid a total of $560 in July; in November, the firm paid $480 for 7,000 copies. The company uses the high-low method to analyze costs. Zurbrigg's variable cost per copy is:

Which of the following techniques is not used to analyze cost behaviour?

Smith Products has determined that the number of machine hours worked (MH) drives the amount of manufacturing overhead incurred (MOH). On the basis of this relationship, a staff analyst has constructed the following regression equation: MOH = $240,000 + 8MH. Which of the choices correctly depicts the nature of Smith's variables? Dependent Independent 1 2 3 4 5 8 240.000

Lewis Company needs to determine the variable utilities rate per machine hour in order to estimate cost for August. Relevant information is as follows. Machine Hours Utilities April 4,500 \ 9,560 May 4,200 9,440 June 6,500 10,725 July 7,000 11,400 Lewis anticipates producing 5,000 units in August, each unit requiring 1.5 hours of machine time. The company uses the high-low method to analyze costs. Required: A. Calculate the variable and fixed components of the utilities cost. B. Using the data calculated above, estimate the utilities cost for August. C. Compare the high-low method versus the visual-fit method with respect to (1) number of data observations used in the analysis and (2) objectivity of the results.

A company observed a decrease in the cost per unit. All other things being equal, which of the following is probably true?

Differentiate between committed costs and discretionary costs. Be sure to present two examples of each and explain which of the two cost types would likely be cut should a company encounter financial difficulties.

Dollah Corporation is studying its marketing cost and sales volume, and has generated the following information by use of a scatter diagram and a least-squares regression analysis: Scatter Diagram Regression Analysis Vaiable cost per unit sold \ 7.50 \ 7.80 Total monthly fixed cost \ 55,000 \ 52,500 Dollah is now preparing an estimate for monthly sales of 20,000 units. On the basis of the data presented, compute the most accurate sales forecast possible.

Costs that result from a company's ownership or use of facilities and its basic organizational structure are termed as:

Amounts spent for charitable contributions are an example of a(n):

Compare and contrast the following types of costs: (1) variable and step-variable and (2) fixed and step-fixed.

Within the relevant range, a curvilinear cost function can sometimes be graphed as a:

The relationship between cost and activity is termed as:

Waller Enterprises has determined that three variables play a key role in determining company revenues. To arrive at an objective forecast of revenues for the next accounting period, Waller should use:

Sweetland Company, which uses the high-low method to analyze cost behaviour, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 700 machine hours to a high of 1,200 machine hours, with the following data being available for the first six months of the year: Month Utilities Machine Hours January \ 8,900 800 February \ 8,560 720 March \ 9,150 \ 10 April \ 9,560 920 May \ 9,825 950 June \ 9,350 900 The fixed utilities cost per month is:

Sweetland Company, which uses the high-low method to analyze cost behaviour, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 700 machine hours to a high of 1,200 machine hours, with the following data being available for the first six months of the year: Month Utilities Machine Hours January \ 8,900 800 February \ 8,560 720 March \ 9,150 \ 10 April \ 9,560 920 May \ 9,825 950 June \ 9,350 900 The variable utilities cost per machine hour is:

Managers in the Priming Department have been studying overhead cost and the relationship with machine hours. Data from the most recent 12 months follow. Machine January \ 5,130 2,830 February 1,700 700 March 7,310 3,503 April 4,660 2,300 May 6,980 3,511 June 6,620 2,686 July 6,330 3,464 August 5,670 2,511 September 7,828 4,060 October 5,910 2,997 November 4,680 2,307 December 6,110 2,964 The manager of the department has requested a regression analysis of these two variables (labeled No. 1 below). However, the staff person performing the analysis decided to run another regression that excluded February (labeled No. 2). She observed that the volume of activity was very low for that month because of two factors: a severe flu outbreak and an electrical fire that disrupted operations for about 10 working days. $\quad$$\quad$$\text { Regression No. } 1$ $\quad$$\quad$$\quad$$\quad$ $\text { Regression No. } 2$ Constant 428.00 Constant 550.00 0.79 0.74 coefficient 1.86 coefficient 1.90 Required: A. Prepare an overhead cost breakdown by using the high-low method. The analysis should be useful in helping to predict variable and fixed costs under normal operating conditions. B. Prepare an estimate of overhead cost for a volume of 3,100 machine hours by using regression no. 1. C. You now have the ability to analyze three cost estimates from the high-low data in part (a) and the two regression equations. Which one do you feel would provide the best estimate? Explain the factors that support your choice. Note: Do not calculate an overhead cost estimate with regression no. 2.

What type of cost exhibits the behaviour that follows? Manufacturing Volume (Units) Cost Per Unit 50.000 \ 1.95 70.000 1.95

George Henry Corporation has a machining capacity of 300,000 hours per year. Utilization of capacity is normally 60%; it has been as low as 25% and as high as 75%. An analysis of the accounting records revealed the following selected costs: Cost A: Total Per hour Cost B: Total Per hour Cost C: Total Per hour At a 25\% \ 500,000 \ 6.67 ? \ 11.80 \ 780,000 \ 10.40 At a 75\% \ 500,000 ? \ 2,655,000 \ 11.80 \ 2,330,000 \ 10.36 George Henry uses the high-low method to analyze cost behaviour. Required: A. Classify each of the costs as being either variable, fixed, or semi-variable. B. Calculate amounts for the two unknowns in the preceding table. C. Calculate the total amount that George Henry would expect at a 60% utilization rate for Cost A, Cost B, and Cost C. D. Develop an equation that George Henry can use to predict total cost for any level of hours within its range of operation.

Research and development costs are an example of a(n):

Consider the six costs that follow. 1. Advertising and promotion costs of a do-it-yourself retailer 2. Surgical supplies used in a hospital's operating room 3. Aircraft depreciation charges of an airline 4. Utility charges that include a minimum-use fee, for a small business 5. Annual business licensing fee paid by a daycare centre 6. Truck fuel consumed by a road construction company Required: A. Classify each of these costs as variable, committed fixed, discretionary fixed, or semi-variable. B. Briefly describe the behaviour of a per-unit variable cost as activity changes. C. What elements are present in a semi-variable cost that cause it to behave in a semivariable manner? D. Generally speaking, does management have more flexibility when dealing with committed fixed costs or discretionary fixed costs?