A) The average cost per unit B) The incremental cost of the next unit C) Not relevant for decision-making D) Constant even if the relevant range changes A) The average cost per unit B) The incremental cost of the next unit C) Not relevant for decision-making D) Constant even if the relevant range changes

Exam 2: Cost Concepts, Behaviour, and Estimation

The total cost of materials, where the supplier charges $9/kg if 0-1000 kilograms are purchased, $8/kg if 1001-2000 kilograms are purchased, and $7/kg if 2001 or more kilograms are purchased, is a:

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Question 1

Correct Answer:

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Coffee Cart sells a variety of hot and cold coffee beverages. Data for a recent month appears below: Revenue $20,000 Costs: Ingredients $7,800 Miscellaneous supplies (napkins, etc.)1,200 Rent 1,000 Wages for part time employees 3,000 Cart attendant salary 5,000 Total costs 18,000 Profit $ 2,000 Part time employees are scheduled for busy times, but are sent home as soon as volumes drop enough to warrant it. a)Categorize each cost as fixed or variable and explain your choice. b)Create a cost function. c)Discuss three reasons why the cost function you estimated in part (b)might provide an inaccurate estimate for next month's costs.

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Question 2

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a)Ingredients are variable because we use them as we sell product.
Miscellaneous supplies are also variable
Rent is fixed
Wages for part time employees are variable
Store attendant salary is fixed.
b)TC = ($1,000 + $5,000)+ ($7,800 + $1,200 + $3,000)/$20,000 x total revenues = $6,000 + 0.60 x total revenues
c)There are many possible reasons why the cost function might provide an inaccurate estimate. Here are several possible reasons; students may think of others:
-Cost behaviour may have been misclassified when creating the cost function
-Revenue might be an inappropriate cost driver for one or more of the variable costs
-Fixed costs might change from the prior month. For example, the cart attendant's salary might be increased or a new rental agreement might be negotiated.
-Variable costs per dollar of revenue might change from the prior month. For example, the company might negotiate a lower cost for supplies such as napkins, or ingredient costs might fluctuate with food commodity prices.
-The cost function was estimated using only one month's data, which might not be representative of the activities and costs for other months.

Write out the algebraic formula that represents a cost function and explain each item in the equation.

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Question 3

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TC = F + V*Q. TC is total cost, that is, the total amount of cost that is being explained. F is fixed costs, which do not change with small changes in volumes of the cost driver. V is variable cost per unit of the cost driver, and that cost remains constant within the relevant range, but its total cost increases proportionately with increases in cost driver volumes. Q is the quantity of cost driver.

ABC Manufacturing wants to determine whether its various product costs are direct or indirect and variable or fixed. This information will be used to determine product unit costs. All employees are guaranteed a 40 hour work-week except factory employees, who are paid an hourly wage and can be sent home when there is no work. The following classification scheme has been developed: A. Direct variable cost B. Indirect variable cost C. Direct fixed cost D. Indirect fixed cost Using the categories shown above, indicate how each of the following costs should be classified if the cost object is a single unit of product: 1. Labour in the maintenance department 2. Glue and tacks used in production 3. Lubricating oil for production machines 4. Salary of the plant accountant 5. Oil used for monthly preventive maintenance on production machines 6. Insurance on the plant machinery 7. Hourly factory wages 8. Wages in the materials receiving and handling department 9. Taxes on plant equipment 10. Shipping costs for direct materials

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Question 4

Past costs are relevant for decision-making, but irrelevant for predicting future costs.

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Question 5

Consider the following cost data for the cost object; number of machine setups. Each set of costs (A, B, and C)is from a different type of manufacturing operation and represents the cost behaviour for the cost of that company's machine setups. Number of Machine Setups Cost A Cost B Cost C 0 $ 0 $80 $ 5 10 20 79 37 20 40 82 66 30 60 78 91 40 80 81 123 50 100 79 154 Cost C is best described as:

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Question 6

Marginal cost is:

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Question 7

After estimating a past cost function, managers: I. May need to update it for future changes. II. Have all of the information they need to predict future costs III. May or may not use it to estimate future costs.

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Question 8

An organization's accountant is estimating next period's total overhead costs. She performed two regression analyses, one based on direct labour hours and the other based upon machine hours. The results were: Total overhead = $150,000 + $4 x direct labour hours Adjusted R-square = 0.65 Total overhead = $130,000 + $5 x machine hours Adjusted R-square = 0.77 For the next period, the accountant anticipates using 28,000 direct labour hours and 26,000 machine hours. Based upon this information, what is the best estimate for overhead for the next period?

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Question 9

Which of the following is an alternative name for the cost being predicted in a regression analysis?

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Question 10

Textbook costs are an opportunity cost of earning a college degree.

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Question 11

A firm will build 8 units of a product. All costs are subject to an 85% learning curve. The first unit cost $75,000 to build. If the firm values inventory and cost of goods sold at the average cost for all units in the production run, what will be the cost to produce the second unit? Use the following values as needed to respond: Ln(95%)/ ln(2)= -0.074 Ln(90%)/ ln(2)= -0.152 Ln(85%)/ ln(2)= -0.234 Ln(80%)/ ln(2)= -0.322 Ln(75%)/ ln(2)= -0.415 Ln(70%)/ ln(2)= -0.515

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Question 12

List and describe three methods for developing a cost function. List one pro and one con for each method.

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Question 13

The difference between simple regression and multiple regression is that:

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Question 14

Total fixed costs are $25,000 per year. The variable cost per unit is $10 per unit up to 5,000 units per year and $7.50 per unit thereafter. a)Develop a cost function for this cost. b)What could cause the change in variable costs shown above? Explain. c)List three assumptions that are made when developing these types of cost functions and give one reason that each assumption might not hold.

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Question 15

Which of the following could be defined as a cost object?

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Question 16

Jackie's Kennels is located in a small city in Western Canada. The company employs three pet attendants, four pet groomers, and two front office staff who book appointments and keep records. The Kennel provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. Jackie's relevant range of activity would best be measured in terms of:

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Question 17

A manager might use this method to create a graph of cost behaviour without any statistical techniques.

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Question 18

A scatter plot is especially useful when managers wish to:

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Question 19

Assume an 80% learning curve and that the first unit takes 6 hours. How long does it take to produce the second unit? Use the following values as needed to respond: Ln(95%)/ ln(2)= -0.074 Ln(90%)/ ln(2)= -0.152 Ln(85%)/ ln(2)= -0.234 Ln(80%)/ ln(2)= -0.322 Ln(75%)/ ln(2)= -0.415 Ln(70%)/ ln(2)= -0.515

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Question 20

Showing 1 - 20 of 171

The total cost of materials, where the supplier charges $9/kg if 0-1000 kilograms are purchased, $8/kg if 1001-2000 kilograms are purchased, and $7/kg if 2001 or more kilograms are purchased, is a:

Write out the algebraic formula that represents a cost function and explain each item in the equation.

Past costs are relevant for decision-making, but irrelevant for predicting future costs.

Marginal cost is:

After estimating a past cost function, managers: I. May need to update it for future changes. II. Have all of the information they need to predict future costs III. May or may not use it to estimate future costs.

Which of the following is an alternative name for the cost being predicted in a regression analysis?

Textbook costs are an opportunity cost of earning a college degree.

List and describe three methods for developing a cost function. List one pro and one con for each method.

The difference between simple regression and multiple regression is that:

Which of the following could be defined as a cost object?

A manager might use this method to create a graph of cost behaviour without any statistical techniques.

A scatter plot is especially useful when managers wish to:

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Strategic Management of Costs

Measuring and Assigning Costs for Income Statements

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Strategic Performance Measurement

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