Exam 10: Determining How Costs Behave

Answer the following questions using the information below: Jerry's TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2011 operations. -What were total fixed costs for 2011?

The cumulative average-time learning model with a 80% 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 80 minutes to manufacture.

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 labor is $20 per hour. b. Direct materials cost $18.40 per cubic yard. c. Utilities have a minimum charge of $2,000, plus a charge of $0.10 per kilowatt-hour. d. Machine operating costs include $400,000 of machine depreciation per year, plus $150 of utility costs for each day the machinery is in operation.

Answer the following questions using the information below: For Alice Company, labor-hours are 25,000 and wages $94,000 at the high point of the relevant range, and labor-hours are 15,000 and wages $70,000 at the low point of the relevant range. -What is the estimate of total labor costs at Alice Company when 10,000 labor-hours are used?

The Bhaskara Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows: What is the linear cost function?

Step fixed-cost functions are variable over the long run.

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

One assumption frequently made in cost behavior estimation is that changes in total costs can be explained by changes in the level of a single activity.

Over the short run, a nonlinear cost function would most likely result from all of the following EXCEPT:

All cost functions are linear.

Misinterpretation of data can arise when fixed costs are reported on a per unit basis.

Simple regression is known as "simple" because it includes only one cost driver.

Plotting learning curve observations is helpful in selecting the appropriate learning curve model.

Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year.

When using activity-based costing all of the following are true EXCEPT that:

Bennet Company employs 30 individuals. Eighteen employees are paid $14 per hour and the rest are salaried employees paid $4,000 a month. How would total costs of personnel be classified?

Answer the following questions using the information below: At the Todd Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs. -Which cost estimation method is being used by Todd Company?

It can be inferred that when there is a high correlation between two variables, one is the cause of the other.

The ideal database contains:

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