Exam 10: Determining How Costs Behave

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. -If the number of engineers is considered the cost driver, what amount of library and information center costs will be allocated to Department A?

Explain the difference between the cumulative average-time learning model and the incremental unit-time learning model.

Regression analysis relies on only two observations to estimate a linear cost function.

When evaluating and choosing cost drivers all of the following are true EXCEPT:

Learning curve effects can be incorporated:

Answer the following questions using the information below: The Delmonico Company uses the high-low method to estimate the cost function. The information for 2011 is provided below: -What is the estimate of the total cost when 300 machine-hours are used?

Goodness-of-fit measures how well the predicted values in a cost estimating equation:

Discuss the potential use of nonlinear curves in cost functions and cost analysis. Give some examples.

Wimmer's Storage ran its freezer in February, a slow month, for 360 hours for a total cost of $57,600. In July, a peak month, the freezer ran for 720 hours for a total cost of $82,080. Required: a. What is the cost estimating equation for the department if hours of freezer use are used as the cost driver? b. What is the estimated total cost at an operating level of 500 hours?

The coefficient of determination (r²)measures the percentage of variation in X (the independent variable)explained by Y (the dependent variable).

When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range.

The learning-curve models presented in the text examine:

Place the following steps in order for estimating a cost function using quantitative analysis:

Newton Company used least squares regression analysis to obtain the following output: Required: a. What is the total fixed cost? b. What is the variable cost per employee? c. Prepare the linear cost function. d. What is the coefficient of determination? Comment on the goodness of fit.

The high-low method involves choosing the period of highest cost driver activity and the period of lowest cost driver activity.

All individual cost items included in the dependent variable should have:

Arfaei Company manufactures chairs. Because the efforts of manufacturing are approximately equal between labor and machinery, management is considering other possible cost drivers. By considering different cost drivers, it is anticipated that the estimating process can be improved. The following cost estimating equations with their r² values have been determined for 20X5: Required: a. Which equation should be selected for the analysis? b. What other factors should be included in the selection of the estimating equation?

Cross-sectional data pertain to the same entity (organization, plant, activity, and so on) over successive past periods.

Which of the following is an equation of a fixed cost function?

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 new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A?