Exam 10: Determining How Costs Behave

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

The independent variable:

A learning curve is a function:

Answer the following questions using the information below: The Ranger Company uses the high-low method to estimate it's cost function. The information for 2011 is provided below: -What is the constant for the estimating cost equation?

As part of his job as cost analyst, Max Thompson 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 total 4,200, what are the total estimated costs of the Machining Department?

Knowing the proper relevant range is essential to properly classify costs.

Cross-sectional data analysis includes:

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. -If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A?

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 constant?

The cost to be predicted is referred to as the:

The coefficient of determination is important in explaining variances in estimating equations. For a certain estimating equation, the unexplained variation was given as 26,505. The total variation was given as 46,500. What is the coefficient of determination for the equation?

Data collection problems can arise when data is recorded manually rather than electronically.

Answer the following questions using the information below: At the Christopher 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. -Which cost estimation method is being used by Christopher Company?

A major concern that arises with multiple regression is multicollinearity, which exists when:

Pam's Stables used two different independent variables (trainer hours and number of horses)in two different equations to evaluate the cost of training horses. The most recent results of the two regressions are as follows: Trainer's hours: r² = 0.56 Number of horses: r² = 0.63 What is the estimated total cost for the coming year if 16,000 trainer hours are incurred and the stable has 400 horses to be trained, based on the best cost driver?

Which cost estimation method uses a formal mathematical method to develop cost functions based on past data?

Each time Mayberry Nursery hires a new employee, it must wait for some period of time before the employee can meet production standards. Management is unsure of the learning curve in its operations but it knows the first job by a new employee averages 30 hours and the second job averages 24 hours. Assume all jobs to be equal in size. Required: a. What is the learning-curve percentage, assuming the cumulative average-time method? b. What is the time for a new employee to build 16 units with this learning curve using the cumulative average-time method? You may use an index of -0.1520.

Answer the following questions using the information below: Miller's Good Value 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 2008?

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. -Which cost estimation method is being used by Jerry's TV and Appliance Store?

A high correlation between two variables s and t indicates that: