Exam 3: Determining How Costs Behave

Answer the following questions using the information below: Stosur Courtside Caterers is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations. Sales (5000 microwave ovens) \ 1350000 Cost of goods sold 540000 Store manager's salary per year 75000 Operating costs per year 225000 Advertising and promotion per year 25000 Commissions (4\% of sales) 67500 -What were total fixed costs for 2018?

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

Dougherty Company employs 20 individuals.Eight employees are paid $12 per hour and the rest are salaried employees paid $3000 a month.How would total costs of personnel be classified?

Answer the following questions using the information below: The Nowra Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable.Nowra Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. Month Cost Hours January \ 40000 3500 February 24400 2000 March 31280 2450 April 36400 3000 May 44160 3900 June 42400 3740 -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 hours: Variable Coefficient StandardError -Value Independent Variable \ 913.32 \ 198.12 4.61 Constant S20.90 \ 2.94 7.11 $r ^ { 2 } = 0.56$ Number of horses: Variable Coefficient StandardError -Value Constant \ 4764.50 \ 1073.09 4.44 Independent Variable \ 864.98 \ 247.14 3.50 =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?

Answer the following questions using the information below: For Echuca Company,labour-hours are 50 000 and wages $188 000 at the high point of the relevant range,and labour-hours are 30 000 and wages $140 000 at the low point of the relevant range. -What is the slope coefficient per labour-hour?

It is appropriate to incorporate expected learning-curve efficiencies when evaluating performance.

The incremental unit-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.

When plotted on a graph,cost functions are usually displayed by having the level of activity (machine-hours,etc. )plotted on the vertical axis (called the y-axis)and the amount of total costs corresponding to (or dependent on)the levels of that activity on the horizontal axis (called the x-axis).

What three criteria should a company use to evaluate and choose a cost driver? Briefly explain each of these criteria. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Answer the following questions using the information below: Stosur Courtside Caterers is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations. Sales (5000 microwave ovens) \ 1350000 Cost of goods sold 540000 Store manager's salary per year 75000 Operating costs per year 225000 Advertising and promotion per year 25000 Commissions (4\% of sales) 67500 -What was the variable cost per unit sold for 2018?

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 materials cost is $.75 per kilo. b.Direct labour cost is $16.75 per hour. c.Car rental has a fixed fee of $75.00 per day plus $.50 per kilometre driven. d.Machine operating costs include $350 of maintenance per month,and $5.00 of coolant usage costs for each day the machinery is in operation. _____________________________________________________________________________________________ _____________________________________________________________________________________________

A learning curve measures the effect of learning on efficiency.

The first step in estimating a cost function using quantitative analysis is to identify the independent variable.

'Simple regression' is known as 'simple' because it is much less complex than the 'high-low method'.

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

Answer the following questions using the information below: At the Holden Company,the cost of the library and information centre 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 centre costs. Total library and information centre costs are $75 000. Department Number of employees 125 500 125 Number of engineers 0 75 25 -If the number of engineers is considered the cost driver,what amount of library and information centre costs will be allocated to Department A?

For January,the cost components of a picture frame include $0.35 for the glass;$0.65 for the wooden frame,and $0.80 for assembly.The assembly desk and tools cost $600.Two thousand frames are expected to be produced in the coming year.What cost function best represents these costs?

Evidence of relationships and extreme observations are highlighted when costs and their cost drivers are plotted graphically.

Learning curve effects can be incorporated:

Sydney Company manufactures chairs.Because the efforts of manufacturing are approximately equal between labour 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 20X9: Required: 1. $x=$ cutting time $y=\$ 19500+\$ 20 x$ $r^{2}=0.65$ 2. $X=$ labour $\mathrm{y}=\$ 5000+\$ 25 \mathrm{X}$ $\mathrm{r}^{2}=0.49$ 3. $x=$ machinery $y=\$ 44500+\$ 5 x$ $\mathrm{r}^{2}=0.55$ a.Which equation should be selected for the analysis? b.What other factors should be included in the selection of the estimating equation? _____________________________________________________________________________________________ ____________________________________________________________________________________________