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Exam 8: Cost Estimation

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Question 31

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Green Mountain College is a 5,000 student state-supported,four-year institution located in the mid-South.Physical facilities can accommodate another 1,000 students,and the college administration is attempting to estimate the added yearly cost of educating the additional students.The Business Manager of Green Mountain College has asked you to evaluate two linear regressions given below,and recommend the better one to her.

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Where:SC = Student cost
CH = Cost per ...

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Question 32

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The following costs were for Bikeway Inc. ,a bicycle manufacturer: At an output level of 1,000 bicycles,per unit variable cost is calculated to be:

A) $100.00.
B) $101.50.
C) $125.00.
D) $126.32.
E) $131.58.

F) C) and D)
G) All of the above

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Question 33

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Pearson Electric Company uses the high-low method to analyze mixed costs.The following information relates to the production data for the first six months of the year. What is the estimated total cost at an operating level of 1,180 hours?

Accurate cost estimates are required by strategic management for all except:

Microdash Company uses the high-low method to analyze mixed costs.The following information relates to the production data for the first six months of the year. What is the estimated total cost at an operating level of 8,000 hours?

The maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget.Examination of past records disclosed the following costs and volume measures: Highest and Lowest: Cost per month $86,000 and $74,000;Machine hours 96,000 and 66,000. Using the high-low-point method of analysis,the estimated variable cost per machine hour is:

Burmer Co.has accumulated data to use in preparing its annual profit plan for the upcoming year.The cost behavior pattern of the maintenance costs must be determined.Data regarding the machine hours and maintenance costs for the last year and the results of the regression analysis are as follows: A staff assistant has run regression analyses on the data and obtained the following output using Excel: The statistic that indicates precision of the regression is:

The following costs were for Optimal View Inc. ,a contact lens manufacturer: At an output level of 425 lenses,per unit variable cost is calculated to be:

Which one of the following cost estimation methods is the most accurate?

This question is based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X) .The following relationship was found: Y = $1,000 + $2X.The variable Y in the equation is an estimate of:

Sterling Glass Company uses the high-low method to analyze mixed costs.The following information relates to the production data for the first six months of the year. How should the cost function be properly stated?

The use of a relationship of total factory overhead to direct labor hours is said to be valid only within the relevant range,which means:

The independent variable in regression analysis is:

Burmer Co.has accumulated data to use in preparing its annual profit plan for the upcoming year.The cost behavior pattern of the maintenance costs must be determined.Data regarding the machine hours and maintenance costs for the last year and the results of the regression analysis are as follows: A staff assistant has run regression analyses on the data and obtained the following output using Excel: The 95% confidence range for a prediction of monthly manufacturing cost using the model is:

A retailer,in business for over 50 years,has developed the following regression model from the past 60 months of operating data: Monthly sales dollars = $50,000 + $4.70A + $30B - $1,000X.Where A = number of customers.B = advertising dollars per month.X = 1 if a winter month.X = 0 if other months.An appropriate interpretation of this model is that:

Train Express Co. ,which manufactures train engines,is attempting to predict its maintenance costs more accurately.Maintenance costs are a mixed cost.Maintenance costs and machine hours for the first four months of the year are as follows:

Elisko Inc.is a major book distributor.Elisko's Shipping Department consists of a manager plus ten other permanent positions- four supervisors and six loaders.The four supervisors and six loaders provide the minimum staff and frequently must be supplemented by additional workers,especially during the weeks when the volume of shipments is heavy.Thus,the number of people shipping the orders frequently averages over 30 per week,i.e. ,ten permanent persons plus 20 temporary workers.The temporary workers are hired through a local agency.Elisko must use temporary workers to maintain a minimum daily shipment rate of 95 percent of orders presented for shipping.The loss of efficiency from using temporary workers is minimal,and the $10.00 per hour cost of temporary workers is less than the $15.00 per hour for the loaders and $22.50 per hour for the supervisors on Elisko's permanent staff.The agency requires Elisko to utilize each temporary worker for at least four hours each day.Jim Locter,Shipping Manager,schedules temporary help based on forecasted orders for the coming week.Supervisors serve as loaders until temporary help is needed.A supervisor stops loading when the ratio of loaders to supervisors reaches 7: 1.Locter knows that he will need temporary help when the forecasted average daily orders exceed 300.Locter has frequently requested from two to four extra temporary workers per day to guard against unexpected rush orders.If there was not enough work,he would dismiss the extra people at noon after four hours of work.The agency has not been pleased with Locter's practice of overhiring and has notified Elisko that it is changing its policy.From now on,if a person is dismissed before an eight-hour assignment is completed,Elisko will still be charged for an eight-hour day plus mileage back to the agency for reassignment.This policy would go into effect the following week.Paula Brand,General Manager,called Jim Locter to her office when she received the notice from the agency.She told Locter,"Your staffing has to be better.This penalty could cost us up to $300-$500 per week in labor cost for which we receive no benefit.Why can't you schedule better?" Locter replied,"I agree that the staffing should be better,but I can't do it accurately when there are rush orders.By being able to layoff people at noon,I have been able to adjust for the uncertain order schedule without cost to the company.Of course,the agency's new policy changes this." Locter and Brand contacted Elisko's Controller,Mitch Berg regarding Locter's problem on how to estimate the number of people needed each week.Berg reasoned that Locter needed a quick solution until he could study the work flow.Berg suggested a regression analysis using the number of orders shipped as the independent variable and the number of workers (permanent plus temporary)as the dependent variable.Berg indicated that data for the past year was available 'and that the analysis could be done quickly using the accounting department's software.Berg completed the two regression analyses that are presented below.The first regression was based on the data for the entire year.The second regression excluded the weeks when only the 10 permanent staff persons were used;these weeks were unusual and appeared to be out of the relevant range.Locter was not familiar with regression analysis and,therefore,was unsure how to implement this technique.He wondered which regression data he should employ,i.e. ,which one was better.When he recognized that the regression was based on actual orders shipped by week,Berg told him he could use the forecasted shipments for the week to determine the number of workers needed.

Burmer Co.has accumulated data to use in preparing its annual profit plan for the upcoming year.The cost behavior pattern of the maintenance costs must be determined.The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs.Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows: Average cost per hour ($51,830 / 6,260) = $8.28 (rounded to the nearest cent) r = .99821;r 2= .99642. The percent of the total variance that can be explained by the regression equation is:

Thompson Refrigerators Inc.needs to prepare pro forma financial statements for the next fiscal year.To do so,the company must forecast its total overhead cost.The actual machine hours and total overhead cost are presented below for the past six months. Using the high-low method,total monthly fixed overhead cost is calculated to be:

CalcuCo hired Effner & Associates to design a new computer-aided manufacturing facility.The new facility was designed to produce 300 computers per month.The variable costs for each computer are $660 and the fixed costs total $74,700 per month.The average cost per unit,if the facility normally expects to operate at eighty-five percent of capacity,is calculated to be (round to nearest cent) :