Exam 10: Analysis of Cost Behaviour

Cari's Locker Service ran its freezer in January, a slow month, for 200 hours for a total cost of $60,000.In June, a peak month, the freezer ran for 1,000 hours for a total cost of $92,000.Required: Using the high-low method determine the average cost of running the machine one hour in a month were the freezer ran for 800 hours?

Multicollinearity exists in multiple linear regression when two or more predictor variables are highly correlated with each other.

The industrial-engineering method is

Cross Distribution Company uses two different independent variables (number of orders and weight of orders)in two different equations to evaluate costs of the packaging department.The most recent results of the two regressions are as follows: Number of orders: Weight of orders: There were twenty degrees of freedom.The critical value at the 95% level is 1.729.Required: a.What are the estimating equations for each cost driver? b.Which cost driver is best and why? c.Prepare the cost equation using the following high and low points:

A learning curve measures the effect of learning on efficiency.

Answer the following question(s)using the information below.Penny's TV and Appliance Store is a small company that has the following information pertaining to current year operations. -What are the estimated total costs if Penny's expects to sell 3,000 units next year?

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 manufacturing labour is $10 per hour. b.Direct materials cost $9.20 per cubic yard. c.Utilities have a minimum charge of $1,000, plus a charge of $0.05 per kilowatt-hour. d.Machine operating costs include $200,000 of machine depreciation per year, plus $75 of utility costs for each day the machinery is in operation.

An experience curve

Cari and Jereme just bought a bed and breakfast inn at a very attractive price.The business had been doing poorly.Before they reopened the inn for business, they attended a seminar on operating a high quality business.Now that they are ready to open the inn, they need some advice on quality costs and management.Required: Identify four categories of quality costs.In addition, identify three items that would be classified in each of the categories.

The cost components of a heater include $35 for the compressor, $12 for the sheet molded compound frame, and $80 per unit for assembly.The factory machines and tools fixed cost is $55,000.The company expects to produce 1,500 heaters in the coming year.What cost function best represents these costs?

A learning curve is a function

The Door Company manufactures doors.Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. A)Appraisal B)Internal failure C)Prevention D)External failure -Warranty repairs

Answer the following question(s)using the information below: At the Todd Company, the cost of the personnel department has always been charged to the various departments based upon the 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 costs are $320,000. -If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A?

A mixed cost has a fixed element.

The cumulative average-time learning model with a 90% learning curve indicates that if it takes 100 minutes to manufacture the first unit of a new model, then the second unit will take only 90 minutes to manufacture.

The demand for Ballard's Glass Company's products varies.Each order is one window, and each window takes 26 minutes to install.Assuming wait time is 12 minutes, and order receipt time equals 21 minutes what is the cycle time for an order on average?

Use the information below to answer the following question(s).Dylan Products has a budget of $1,200,000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs.The new method will require $40,000 in training costs and $150,000 in annual equipment costs.Management is willing to adjust the budget for an amount up to the cost of the new equipment.The budgeted production level is 210,000 units.Appraisal costs for the year are budgeted at $500,000.The new prevention procedures will save appraisal costs of $50,000.Internal failure costs average $20 per failed unit of finished goods.The internal failure rate is expected to be 4% of all completed items.The proposed changes will cut the internal failure rate by one-half.Internal failure units are destroyed.External failure costs average $48 per failed unit.The company's average external failures average 2.5% of units sold.The new proposal will reduce this rate to 1%.Assume all units produced are sold and there are no ending inventories. -How much will appraisal costs change assuming that the new prevention methods reduce material failures by 30% in the appraisal phase?

Internal failure costs include

Vestor Ltd.has estimated a 90% cumulative average-time learning curve applies to labour time to manufacture its new product.The first unit took 18 hours.If Vestor's estimates are correct, how many hours will be used to manufacture 4 total units?

For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden frame, and $0.80 for assembly.The assembly desk and tools cost $400.1,000 frames are expected to be produced in the coming year.What cost function best represents these costs?