Exam 5: Cost Drivers and Cost Behavior

Leman Suitcase Company The Leman Suitcase Company is trying to decide which independent variable would be a better predictor of advertising expense.The following regressions were run using sales dollars and units sold as the independent variables. Regression Analysis #1 Dependent variable - Advertising Expense Independent variable - Sales Dollars Regression Analysis #2 Dependent variable - Advertising Expense Independent variable - Units Sold Refer to the Leman Suitcase Company.Which regression formula is likely to be more reliable? Why?

Even if a firm shuts down,the firm still incurs some capacity costs called

Which of the following characterizes a time period long enough to allow management to change the level of production within the constraints of current total productive capacity?

The cost analyst must consider on a case-by-case basis whether assumptions made are

Which of the following statements is true concerning discretionary costs?

PB Investigators LLC hires one private investigator for every 5 clients.The annual salary for each private investigator is $60,000 per year.The cost to PB Investigators LLC for investigators is known as which of the following?

How does one interpret the results of regression analysis?

Judy Barker is vice president of finance for Maryland Crab House Restaurant,which is a chain on the East Coast of the U.S.Judy is considering a coupon promotion which entitles patrons to a 20% discount.The cost of mailing and printing is estimated to be $400,000 and the estimated increase in sales for the year is estimated at $2,500,000 less the 20% coupon discount.To include as part of her analysis,Judy ran a regression on sales data from last year (operating costs and normal sales)and found the following: Required: Based on the limited information provided,what estimate would you give Judy as the best net effect of the coupon promotion on annual profit,ignoring taxes?

Costs that will not vary with activity levels in the short run are known as:

If revenues are $20 per unit,variable costs are $10 per unit,and fixed costs are $150,what is the operating profit when 100 units are sold?

Property taxes,executive salaries,and security are examples of which of the following costs?

Universal Distributors Universal Distributors,a major retailing and mail order operation,has been in business for the past 10 years.During that time,the mail order operations have grown from a sideline to represent over 80% of the company's annual sales.Of course,the company has suffered growing pains.There were times when overloaded or faulty computer programs resulted in lost sales,and the scheduling of temporary workers to augment the permanent staff during peak periods has always been a problem. Peter Ben Ezra,manager of mail order operations,has developed procedures for handling most problems.However,he is still trying to improve the scheduling of temporary workers to take telephone orders from customers.Under the current system,he keeps a permanent staff of 60 employees who handle the basics;the number of temporary workers needed for the next day is determined by Ben Ezra each afternoon based on his estimate of the upcoming telephone volume. Mr.Ben Ezra has decided to try regression analysis as a way to improve the hiring of temporary workers.By summarizing the daily labor hours into weekly totals for the past year,Ben Ezra was able to determine the number of workers that were used each week.In addition,he listed the number of orders that had been processed each week.After entering the data into a spreadsheet,Ben Ezra ran two regressions.Regression #1 related the total workers (permanent staff plus temporary workers)to the number of orders received,and Regression #2 related only temporary workers to the number of orders received.The output of these analyses is presented below. Regression Equation: W = a + bT Where: W = Workers T = Telephone Orders Refer to Universal Distributors.Describe at least three ways that Peter Ben Ezra could improve his analysis in order to get better predictions than either of these regression results provides.

The impact of learning curves on time and cost behavior is as follows:

Costs that will continue regardless of production level are

Capacity costs are certain __________ costs that provide a firm with the capacity to produce or sell or both.

Which of the following statements best describes costs that increase in steps?

Which of the following methods of estimating costs is most useful when input/output relationships are well defined and fairly stable over time.

Within the relevant range,variable costs

Average cost calculations.Spinning Health Club has the following cost equation: Total Costs = $40,000+$80n,where n = number of memberships. Required: a.Calculate Spinning's average fixed cost per membership when there are 2,000 memberships. b.What is the average variable cost per membership when there are 2,000 memberships? c.Calculate the average cost per membership when there are 2,000 memberships. (Spinning Health Club;average cost calculations. )

Which statement is correct concerning the learning curve function?