Exam 3: Cost Behavior

Figure 3-1 Sonor Systems undertakes its own machine maintenance. The depreciation on the equipment is $20,000 per year and operating cost is $2 per machine hour. Last year 275,000 machine hours were used to produce 100,000 units. See Figure 3-1. Compute the total machine maintenance cost for last year.

In the method of least squares, each single measure of closeness is first squared. Squaring the deviations avoids problems caused by a mix of positive and negative numbers.

The Hamilton Mills Company cost accountant wants to determine the cost behavior for overhead. Based on observation and discussion with the plant workers, the following accounts have been identified as the most relevant: Supervisor salaries and depreciation are believed to be generally be fixed; Indirect labor, Utilities, and Purchasing are generally believed to be variable; Indirect labor primarily is responsible for moving materials; Utility cost is primarily caused by the electricity to run machinery; and Purchasing costs are driven by the number of purchase orders. These accounts and their balances are given below: Information on the activities is given below: Required: 1. Why did the cost accountant decide that salaries and depreciation were fixed? 2. Calculate the average account balance for each of the 5 accounts and calculate the average monthly amount for each of the three drivers. 3. Calculate the fixed overhead and variable rates for each of the costs. Write an equation for the total overhead cost. 4. In January, 490 moves; 4,375 machine hours, and 220 purchase orders were expected. What is the amount of overhead predicted?

Figure 3-6 The Stanford Company incurred the following maintenance cost during a five month period: Refer to Figure 3-6. Using a computer or calculator, compute the estimate of the fixed portion of maintenance costs using the method of least squares. Rounded to dollars, this value would be

Mixed costs, by definition, contain both

Figure 3-3 The Sandoval Company has four process engineers that are each able to process 1,500 design changes. Last year 5,250 design changes were produced by the four engineers. Each engineer is paid $60,000 per year. Refer to Figure 3-3. What is the unused capacity in dollars?

The learning curve that decreases by a constant percentage each time the cumulative quantity doubles is known as the

Direct materials are an example of a

Figure 3-7 The following computer printout estimated overhead costs using regression: Please find the following statistical table During the last accounting period 10,000 DLH were worked. Refer to Figure 3-7. Find the t-value for a 90 percent confidence level.

The following data is available of estimated overhead costs using linear regression: Table of Selected Values: t Distribution What is the interval around Y if 95 percent confidence is desired?

Which of the following costs is a variable cost?

Drivers that explain changes in costs as factors other than changes in units produced are called:

The plot of data points showing the relationship between materials handling costs and activity output is called a scattergraph.

If a motorcycle manufacturer changes from skilled labor to computer-controlled assembly procedures, the past data

Before opting to use managerial judgment, management should make sure that each cost is predominantly fixed or variable.

Multiple regression is a dependable tool for identifying the behavior of activity costs.

Figure 3-7 The following computer printout estimated overhead costs using regression: Please find the following statistical table During the last accounting period 10,000 DLH were worked. Refer to Figure 3-7. What is the model?

__________ are assumed to be the sole drivers of a traditional cost management system.

Costs can display variable, fixed, or mixed behavior, and it important that they are classified accurately.

Knowledge of cost and activity-level relationship is used by experienced __________ .