Exam 2: Cost Concepts, Behaviour, and Estimation

Reviewing the pattern of a cost over time is a critical step in determining an engineered cost estimate.

When estimating a cost function, accountants often begin with past cost information if it is available. Explain why accountants cannot be certain that past costs will provide a good estimate of future costs.

Salaries and wages you could earn while in college constitute a sunk cost.

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 B is best described as:

Elliott is the vice-president of marketing for NYP Corporation. He has called upon you, a member of the accounting staff, to help him forecast future sales. A regression analysis, with sales as the dependent variable and number of credit clients as the independent variable, yielded the following results: Variable Coefficient t-statistic p-value Intercept 6911.45 3.45 0.01 Number of clients 1157.88 3.75 0.01 Adjusted R-square = 0.85 a)Write out the revenue function for this regression. b)Identify two uncertainties associated with using the number of clients to predict sales.

Three different divisions of a toy manufacturing company are estimating costs for their human resources departments. Each division has a cost structure that is different from the other divisions' and those structures are represented by the following cost behaviour patterns (A, B, and C). Number of Employees Cost A Cost B Cost C 0 $ 0 $120 $118 25 50 118 180 50 100 123 245 75 125 124 296 100 200 119 360 Which cost is best described as variable?

Direct costs are:

A new product's learning curve rate can be expressed as (direct material cost/total cost).

Fixed costs per unit:

Assuming that a cost is mixed and linear, and that past cost behaviour is expected to continue into the future, which of the following is mostly likely the best technique for estimating future costs?

Total fixed costs are $20,000 per month and last month, total variable costs were $7,000 when total revenue was $28,000. a)Write the algebraic expression for this flexible budget for total cost. b)What assumptions are made for a linear cost function like this?

Simple regression minimizes the distance from each data point to:

A high adjusted R-square for the regression of a cost against a cost driver indicates:

The cumulative average-time learning curve can be represented mathematically as:

The high-low method is a specific application of this method of cost estimation:

In regression analysis, the Adjusted R-square statistic is used to evaluate how well the cost driver explains the behaviour in the cost.

A p-value of 1% for the intercept term in a regression of a cost driver against a cost indicates:

Which one of following is not a reason to take into account the relevant range when estimating a cost?

Minh is a cost analyst for TRN Corporation. As part of his job, he must estimate the cost to manufacture wooden and metal computer desks. A recent cost analysis showed the cost of a wooden desk to be $130, while the cost of a metal desk was $107. Can Minh be confident that the cost to produce a wooden desk next period will be $130? Why or why not?

Eastwood Consulting rents a photocopy machine for a monthly rental of $100 plus $0.02 per copy. Photocopier usage varies from month to month depending primarily on the type and volume of consulting reports completed each month. Photocopier usage and cost data for the past several months are as follows: Month Number of Copies Rental Cost January 11,498 $330 February 14,649 392 March 12,719 354 April 10,347 307 May 16,114 422 June 12,648 353 The accountant for Eastwood Consulting would like to develop a budget for July's photocopier Rental cost. Would regression analysis be an appropriate technique for estimating the cost function? Why or why not?