Exam 10: Analysis of Cost Behaviour

In the incremental unit-time learning model,the incremental unit time decreases by a constant percentage each time the cumulative quantity of units produced is doubled.

The ideal database for estimating cost functions has two characteristics: 1.The database should contain numerous reliably measured observations of the cost driver (the independent variable)and the related costs (the dependent variable). 2.It includes values for the independent variable over a wide range. Unfortunately,management accountants rarely have the advantage of working with a database that has both characteristics. Required: Following are a list of data problems that may be encountered.Select three,then for each selection describe the describe the cause/effect of the problem and provide a remedy. 1.The time period for measuring the dependent variable does not match the period for measuring the independent variable. 2.Fixed costs are allocated as if they were variable. 3.Data are either unavailable for all observations or not uniformly available. 4.Extreme values of observations,or outliers,occur when recording costs. 5.There is no causal,economically plausible relationship between the individual cost items in a heterogeneous mixed pool and a single cost driver. 6.Inflation affects the dependent variable,the independent variable(s),or both.

There is a homogeneous relationship between the individual cost items in the dependent variable pool and the cost driver when each activity whose costs are included in the dependent variable has the same cost driver.

A company has identified the following data: What is the order manufacturing time?

Use the information below to answer the following question(s). At the high point of the relevant range,labour hours at Bradco Restoration were 10,000 and wages were $22,500.At the low point of the relevant range,labour hours were 7,500 and wages were $17,500. -When using the high-low method,the two observations used are the high and low observations of the

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?

Inventory carrying costs include the opportunity cost of the investment.

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.Using the high-low method,determine the overhead cost 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?

A measurement of market share is considered a financial measure of customer satisfaction in a balanced scorecard.

Discuss how a manufacturer of personal computers such as Dell Computer can benefit from the introduction of a quality improvement program.

Aunt Lydia's Cookies,Inc. ,prepares frozen gourmet cookies for shipment to upscale grocery stores as well as mailing to web and catalog customers.The company has two workstations,cooking and distribution.The cooking station is limited by the cooking time of the food.Distribution is limited by the speed of the workers.Distribution normally waits on food from cooking.Because the demand has increased in recent months to 4,000 dozen cookies,management is considering adding another oven in the cooking station or else having the cooks start to work earlier.The monthly cost of operating the cooking station one more hour each day is $1,500.The cost of adding another cooking station would add an average of $8 per hour.The current operating hours total eight hours a day,24 days a month.The contribution margin of the finished products is currently $2 per dozen.Inventory carrying costs average $0.50 per dozen per month.Either the extra hour or the new cooking station would increase production by 50 dozen a day,with a long-run increase of 100 dozen units in finished goods inventory to 500 dozen. Required: a.What is the total production per month if the change is made? b.What is the increase in the expected monthly product contribution for each of the possible changes? Assume long-run production equals sales. c.What course of action would you recommend?

When estimating linear cost functions,it is assumed that variations in total cost of a cost object cannot be explained by variations in a single cost driver.

The new cost analyst in your accounting department has just received a computer-generated report that contains the results of a simple regression program for cost estimation.The summary results of the report appear as follows: Required: a.What is the cost estimation equation according to the report? b.What is the goodness of fit? What does it tell about the estimating equation?

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

Manufacturing lead time is the sum of waiting time and manufacturing time for an order.

A nonlinear cost function

Use the information below to answer the following question(s). The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable.Skip Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. -The cost function would be stated as

Use the information below to answer the following question(s). The Monroe Company uses the high-low method to estimate the cost function.The information for the current year is provided below. -What is the estimate of Monroe's cost function when 200 machine hours are used?

In multiple regression,when two or more independent variables are correlated with one another,the situation is known as

Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Windsor,Ontario.The automated system is in its first year of operation and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes.For the first six months of operations,the following data were collected: Required: a.Use the high-low method to determine the estimating cost function with machine-hours as the cost driver. b.Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost driver. c.For July,the company ran the machines for 3,150 hours and used 4,180,000 kilowatt-hours of power.The overhead costs totaled $114,000.Which cost driver was the best predictor for July?