Exam 2: Cost Concepts, Behaviour, and Estimation

Changes in cost behaviour over time are one source of uncertainty in estimating future costs.

Cosby Company is attempting to develop the cost function for repair costs. The following past data are available: Machine Hours Repair Costs 4,800 $6,385 3,400 4,585 4,000 5,285 5,900 7,085 Using the high-low method, what is the variable repair cost per machine hour?

Which of the following methods of estimating future costs can be used when only one period of data is available?

Regression analysis usually provides a higher quality cost function than the high-low method.

Chabu's managerial accountant, Yi-Fan, is classifying the company's costs according to their behaviour to prepare next year's budget. Therefore, the cost object is the entire company. Chabu produces and sells aluminum beverage cans, such as those used for soft drinks. You may find the following facts about Chabu's operation useful in responding to this problem: -Production machines must be cleaned monthly, regardless of the amount of use. -The more cans produced, the more lubrication is needed. -Chabu's monthly production and sales volume is usually at least 1,000 cans, but can be as much as 5,000 cans depending on demand. -Material handling costs include depreciation on equipment and fuel for loaders. -Cans are packaged into 100-unit groups prior to sale. -Research and development costs vary between $10,000 and $10,500 per month -The factory maintenance costs vary between $6,000 and $6,500 monthly. -Chabu's staff level is constant at 25 people, who are all paid salaries. -Raw materials are purchased based on expected production levels. -Sales commissions (based on a per-case amount)are included in marketing department costs. Yi-Fan has classified the costs into three categories: fixed, variable, and mixed. Place an X in the appropriate column of the table below to indicate the most likely behaviour of each cost:

The depreciation on a factory machine is a:

The relevant range in cost accounting is the range over which:

Which of the following statements is false?

The high-low method frequently distorts a cost function because it uses too many data points to make an estimate.

Past cost information might be too unreliable for future cost estimation because:

Estimating a cost function using past cost data to help determine future costs is useful if:

Categorizing costs by their behaviour is one step in estimating relevant costs for a cost object.

Bob and James are installing new flooring in their home. The house has 5 rooms of approximately equal size where the flooring will be replaced. Bob and James spent 3 hours removing the old flooring from the first room. The average time to remove the flooring from 2 rooms is 2.25 hours per room. Determine the learning curve percentage experienced by Bob and James. Below are values that may be useful in answering this question. 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

Variable costs:

Regression analysis is classified as simple or multiple, depending upon the number of dependent variables to be estimated.

Stacy Kuh, the manager of the Ice Cream Igloo, has been told that to earn a reasonable profit she should price her products at 200% of the cost of ingredients. Ms. Kuh has gathered the following data on the cost of ingredients used to make a banana split: -The distributor charges $12 for a dozen bananas; each banana split uses one banana. -Ice cream costs $3.20 per litre; each banana split uses two scoops of ice cream. -One litre of ice cream equals eight scoops of ice cream. -Stacy makes her own fruit toppings at a cost of $0.25 per tablespoon; each banana split uses six tablespoons of fruit toppings. -Each banana split uses three tablespoons of premium chocolate sauce, which costs $0.25 per tablespoon. -The cost of other miscellaneous ingredients, such as whipped cream and nuts, totals $0.05 per banana split. a)Calculate the cost of a banana split. b)List two factors that could cause these estimated costs to be inaccurate.

When the cost object is a unit produced, lubricating oil for production machines would be a(n):

If firm A has a learning curve with 90% learning and firm B has a learning curve with 80% learning, then:

In a regression analysis for estimating a cost function, t-statistics and their p-values do not provide information about:

Uncertainties and information quality are evaluated when determining relevant costs, then not considered again.