Exam 10: Determining How Costs Behave

The H.W.Grant Corporation used regression analysis to predict the annual cost of indirect materials.The results were as follows: What is the cost estimation equation?

In the estimation of a cost function using quantitative analysis,the independent variable ________.

Patrick Ross,the president of M & M Materials 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: Required: Using the high-low method,determine the overhead cost equation.Use machine-hours as your cost driver.

For February,the cost components of a picture frame include $0.40 for the glass,$0.67 for the wooden frame,and $0.83 for assembly.The assembly desk and tools cost $570.Two hundred fifty frames are expected to be produced in the coming year.What cost function best represents these costs?

High Tech Manufacturing Inc. ,incurred total indirect manufacturing labor costs of $480,000.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 ($140,000 based on 8,500 hours of labor)and costs that are variable ($340,000)based on the number of labor-hours used.The company has estimated 7,400 labor hours during the next period. What will be the variable cost per hour?

What is a plausible explanation of a cost function has a slope coefficient of $30 for purchases of 1 to 1,000 units and $25 for production of 1,100 - 2,000 units,and $20 for production of 2,001 - 3,000 units

Which of the following is not true about the cause-and-effect criterion when estimating a cost function?

Nonlinear cost functions can result because of learning curves.

Multiple regression analysis estimates the relationship between the dependent variable and two or more independent variables.

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

Outside of the relevant range,variable and fixed cost-behavior patterns change,causing costs to become nonlinear.

High Tech Manufacturing Inc. ,incurred total indirect manufacturing labor costs of $550,000.The company is labor intensive.Total labor hours during the period were 4,400.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 ($120,000 based on 8,700 hours of labor)and costs that are variable ($430,000)based on the number of labor-hours used.The company has estimated 6,900 labor hours during the next period. What will be the total variable cost for the estimated 6,900 hours? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar. )

A plot of cost driver data and cost data may show all but the following:

For Heavy Manufacturing Company,labor-hours are 40,000 and wages $144,000 at the high point of the relevant range,and labor-hours are 24,000 and wages $96,000 at the low point of the relevant range. What is the slope coefficient?

Simple regression analysis estimates the relationship between the dependent variable and one independent variable.

A contractual agreement that specifies a fee per mile driven,such as with a rental of a truck,is not considered a cause-and-effect relationship between an activity and a cost.

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

Which cost estimation method uses a formal statistical method such as regression analysis to develop cost functions based on past data?

The vertical difference,called the residual term,measures the distance between actual cost of one period and estimated cost of the next period.

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 manufacturing labor is $15 per hour. b.Direct materials cost $25.60 per cubic yard. c.Utilities have a minimum charge of $500,plus a charge of $0.25 per kilowatt-hour. d.Machine operating costs include $250,000 of machine depreciation per year,plus $100 of utility costs for each day the machinery is in operation.