Exam 10: Determining How Costs Behave

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

Which cost estimation method may use time-and-motion studies to analyze the relationship between inputs and outputs in physical terms?

Answer the following questions using the information below: The Frontive Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Frontive Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. Cost Hours \ 24,700 5,000 26,000 5,500 34,000 7,500 45,370 10,300 38,000 9,500 -What is the cost function?

The major advantages of quantitative methods are that they are objective,so managers can use them to evaluate different cost drivers.

The high-low method ________.

Answer the following questions using the information below: Presented below are the production data for the first six months of the year for the mixed costs incurred by Vertise Company. Month Cost Units January \ 4,890 4,100 February 4,426 3,520 March 6,730 5,200 April 9,724 8,250 May 5,900 4,900 June 7,336 6,600 Vertise Company uses the high-low method to analyze mixed costs. -What is the estimated total cost at an operating level of 6,500 units?

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

Goodness of fit has meaning only if the relationship between the cost drivers and costs is economically plausible.

Answer the following questions using the information below: Flify Manufacturing Inc., incurred total indirect manufacturing labor costs of $500,000. The company is labor intensive. Total labor hours during the period were 5,000. Using qualitative analysis, the manager and the management accountant determine that over the period the indirect manufacturing labor costs are mixed costs with only one cost driver-labor-hours. They separated the total indirect manufacturing labor costs into costs that are fixed ($110,000 based on 8,000 hours of labor) and costs that are variable ($390,000) based on the number of labor-hours used. The company has estimated 7,000 labor hours during the next period. -What will be the total variable cost for the estimated 7,000 hours?

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.

The slope of the line of regression is the ________.

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

At the Auric 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. Total personnel department costs are \ 287,500 . Department Number of employees 70 280 225 Number of new hires 25 13 12 -Which cost estimation method is being used by Auric Company?

The cost components of a heater include $30 for the compressor,$10 for the sheet molded compound frame,and $75 per unit for assembly.The factory machines and tools cost is $60,000.The company expects to produce 1,000 heaters in the coming year.What cost function best represents these costs?

In the cumulative average-time learning model,cumulative average time per unit declines by a constant percentage each time the cumulative quantity of units produced doubles.

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: Variable Coefficient Standard Error t-Value Constant \ 74.79 \ 16.82 4.45 Independent variable \ 1,081.76 \ 215.67 5.02 r62=0.75 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?

Answer the following questions using the information below: Uninder Company uses the high-low method to estimate the cost function. The information for 2015 is provided below: Machine-hours Labor Costs Highest observation of cost driver 550 \ 22,000 Lowest observation of cost driver 250 \ 13,000 -What is the estimated cost function for the above data?

Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Olathe,Kansas.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: Machine-hours Kilowatt-hours Total Overhead Costs January 4,560 5,424,000 \ 405,600 February 4,380 5,208,000 404,160 March 4,680 5,400,000 407,040 April 3,960 5,148,000 404,160 May 3,900 5,040,000 391,200 June 3,720 4,944,000 384,000 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 4,000 hours and used 4,550,000 kilowatt-hours of power.The overhead costs totaled $365,000.Which cost driver was the best predictor for July?

When new products are introduced,learning-curve effects can have a major influence on production scheduling.

Multiple regression analysis uses only independent variables and not dependent variables.