Exam 2: Cost Concepts, Behaviour, and Estimation

Sunk costs are:

Which of the following statements is true?

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. If the cost object is cost per day of boarding, which of the following is a direct cost?

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

Managers might estimate a cost function for a variety of reasons including: budgeting, setting employee work schedules, or discontinuing a line of business. Consider the problem of predicting the future cost of fuel for a company's fleet of automobiles. a)Identify three factors that might influence the actual future cost of fuel. b)Identify and explain two potential cost drivers for the cost of fuel. c)Suppose actual fuel costs turn out to be higher than estimated cost. Would this mean that an inappropriate estimation method was used? Explain.

If you create a scatter plot of a cost against a cost driver:

In most accounting information systems, costs are often recorded and coded so they can be summarized based on different:

Consider the pairs of data presented below for 3 costs of USM Corporation: Cost Driver A Cost A Cost Driver B Cost B Cost Driver C Cost C 0 1,200 0 0 0 600 80 1,380 130 1,735 110 890 175 1,495 130 1,735 209 1,200 244 1,475 314 5,488 325 1,500 377 1,390 422 6,987 457 1,700 462 1,500 507 8,723 560 2,000 a)Using scatter plots or other informal methods such as studying the variation in cost compared to the variation in cost driver, describe the behaviour of each cost. b)For each cost that you described above, give one example of a cost that would behave similarly. For variable and mixed costs, also identify the cost driver.

In a regression analysis for estimating a cost function, the adjusted R-Square statistic provides information about:

Past costs are irrelevant for both decision-making and predicting future costs.

Which of the following statements is true?

The labour cost to construct the first unit of a special piece of equipment was $126,000. If labour costs are subject to a 90% learning curve, what will be the cost to build 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

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. Which of the following is the best example of a discretionary cost for Jackie's Kennels?

The managers of Web Design Services Company hired three recent college graduates. When they began preparing simple web pages, it took about ten hours to complete the first page. The supervisor believes a 90% learning rate is typical for this type of work. Note: ln(90%)/ ln(2)= -0.152. a)Estimate the cumulative average time per page to prepare six web pages. b)Estimate the total time to prepare ten web pages.

All of the following are true about analysis at the account level except:

Mixed costs:

Milano Company has an average overhead cost per hour of $10.50 at 3,500 machine hours, and at 3,000 hours it is $11.25. The company managers wish to estimate the overhead cost function. What is the variable overhead cost per machine hour?

(Appendix 2A)Here are the results using regression analysis on maintenance and repair costs for the production machines in a manufacturing company. Two cost drivers were chosen: number of machine setups (X1)and machine hours (X2). Variable Coefficient t-statistic p-value intercept 70,324.15 2.81 p<0.01 X1 14.83 2.39 p <0.05 X2 2.07 2.24 p<0.05 Adjusted R-square = 0.87 a)Write an equation for total cost based upon the regression analysis. b)What does the Adjusted R-square tell you about the quality of information that would be produced using this cost driver? Explain. c)Is it economically plausible that the number of setups and machine hours could drive the costs of the maintenance and repair for the machines? Explain.

(Appendix 2A)Which of the following is not an assumption of linear regression analysis?

The average cost of producing 200 units is $82 for Alpha Company. If production increases by 300 units, the average cost falls to $61. a)What is the variable cost per unit? b)What is the fixed cost? c)What is the average cost of producing 250 units?