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.

Answer the following questions using the information below: The Bovise Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Bovise 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 \ 40,000 3,600 February 38,500 3,000 March 36,280 3,300 April 38,000 3,500 May 69,850 5,850 June 45,000 4,250 -What is the estimated total cost at an operating level of 3,100 hours?

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

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

Put the following steps in order for using the high-low method of estimating a cost function: A = Identify the cost function B = Calculate the constant C = Calculate the slope coefficient D = Identify the highest and lowest observed values

Which of the following is a problem related to cost analysis?

Isondo's TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2015 operations. Sales (1,200 televisions) \ 1,200,000 Cost of goods sold 540,000 Store manager's salary per year 108,000 Operating costs per year 216,000 Advertising and promotion per year 24,000 Commissions ( 3\% of sales) 36,000 -What are the estimated total costs if the company expects to sell 3,500 units next year?

Answer the following questions using the information below: Genend's Good Value Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2015 operations. Sales ( 6,000 microwave ovens) \ 1,740,000 Cost of goods sold 960,000 Store manager's salary per year 100,000 Operating costs per year 250,000 Advertising and promotion per year 30,000 Commissions (3\% of sales) 52,200 -Which cost estimation method is being used by Genend's Good Value Appliance Store?

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 40 hours and the second job averages 32 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.

The cost of the personnel department at the Binix Company has always been charged to the production departments based upon number of employees.Recently,opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned.Total personnel department costs are $180,000. Department Department Department Cost Driver Number of employees 390 325 65 The num ber of new hires 25 35 20 Required: Using the above data,prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used is: a.number of employees. b.the number of new hires. c.Which cost estimation method is being used by Binix Company?

If machine maintenance is scheduled at a time when production is at a low level,then ________.

Fixed costs are sometimes allocated to individual products as part of the standard costing system.When this is the case,they should be treated as variable costs for purposes of future cost estimation.

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

To complete the first setup on a new machine took an employee 300 minutes.Using an 85% cumulative average-time learning curve indicates that the second setup on the new machine is expected to take ________.

A learning curve is a function ________.

Answer the following questions using the information below: Syosis Company uses the high-low method to estimate its cost function. The information for 2015 is provided below: Machine-hours Costs Highest observation of cost driver 2,500 \ 300,000 Lowest observation of cost driver 1,500 \ 220,000 -What is the estimated cost function for the above data?

Patrick Ross,the president of Corise's Wild Game Company,has asked for information about the cost behavior of manufacturing overhead costs.Specifically,he wants to know how much overhead cost is fixed and how much is variable.The following data are the only records available: Month Machine-hours Qwerhead Costs February 1,870 \ 22,500 March 3,080 24,475 April 1,100 24,321 May 2,750 23,650 June 3,850 31,196 Required: Using the high-low method,determine the overhead cost equation.Use machine-hours as your cost driver.

Variable cost per labor-hour is $8.50.Fixed cost is $10,500.Calculate the total cost for 350 labor hours.Machine hours during the period are 50.

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

Multicollinearity exists in multiple regression when two or more independent variables are highly correlated with each other.