Question 1

A staff assistant at Warrington Corporation recently determined that the ﬁrst ﬁve units completed in a new manufacturing process took 500 hours to complete, or an average of 100 hours per unit.The assistant also found that when the cumulative output produced doubles, the average labor time declines by 20%.On the basis of this information, how many total hours would Warrington use if it produces a cumulative amount of 40 units?

Accepted Answer

The learning curve effect indicates that when output doubles, the average time per unit decreases by 20%. Starting with 100 hours per unit for 5 units, the average time for 10 units is 80 hours, for 20 units is 64 hours, and for 40 units is 51.2 hours. Total hours for 40 units is 40 * 51.2 = 2,048 hours.

Question 2

Focus, Inc.operates a small package delivery service in the Atlanta suburbs.If the company uses a regression equation to forecast total operating costs, the equation's intercept would correspond to the:

Accepted Answer

The intercept of a regression equation represents the fixed costs, which are the costs that do not vary with the number of deliveries. The slope of the equation would represent the variable costs per delivery. Therefore, the intercept would correspond to the fixed operating costs.

Question 3

Rushmont, Inc.operates a small package delivery service in the Nashville suburbs.If the company uses a regression equation to forecast total operating costs, the coeﬃcient of the equation's independent variable would correspond to the:

Accepted Answer

The coefficient of the independent variable in a regression equation represents the change in the dependent variable for a one-unit change in the independent variable. In this context, it corresponds to the variable operating cost per delivery.

Question 4

Compare and contrast the following types of costs: (1) variable and step-variable and (2) ﬁxed and step-ﬁxed.

Accepted Answer

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Question 5

Differentiate between committed costs and discretionary costs.Be sure to present two examples of each and explain which of the two cost types would likely be cut should a company encounter ﬁnancial diﬃculties.

Accepted Answer

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Question 6

Blaster, Inc.recently conducted a least-squares regression analysis to predict selling expenses.The company has constructed the following regression equation: Y = 329,000 + 7.80X.Which of the following statements is false if the primary cost driver is number of units sold?

Accepted Answer

The regression equation indicates that "X" represents the number of units sold, not the number of hours worked.

Question 7

Which of the following is not an issue in the collection of data for cost estimation?

Accepted Answer

All the options listed are common issues encountered in the collection of data for cost estimation, including outliers, missing data, mismatched time periods, and inflation.

Question 8

Trey, Inc.is studying marketing cost and sales volume, and has generated the following information by use of a scatter diagram and a least-squares regression analysis: Scatter Regression Diagram Analysis Variable cost per unit sold $ 6.50 $ 6.80 Total monthly ﬁxed cost $45,000 $42,500 Trey is now preparing an estimate for monthly sales of 18,000 units.On the basis of the data presented, compute the most accurate sales forecast possible.

Accepted Answer

Using the regression equation:

y = a + bx

where
y = total cost
x = number of units sold

The equation for the given data is:

y = 42500 + 6.80x

Substituting x = 18,000 into the equation, we get:

y = 42500 + 6.80(18000) = 164900

Therefore, the most accurate sales forecast possible is $164,900.

Question 9

Berringer Designs hired a graphic artist.It is estimated that the artist's learning rate is at 70% and her ﬁrst quarter's output amounted to 300 relatively equal job outputs, which took her a total of 50 hours to complete.Output is expected to double in every succeeding quarter. What is the total time requirement as of the 5th quarter? (Do not round your intermediate calculations.)

Accepted Answer

- The output is expected to double every successive quarter, which means that the output for the 2nd quarter is 600 (300 x 2), the output for the 3rd quarter is 1200 (600 x 2), the output for the 4th quarter is 2400 (1200 x 2), and the output for the 5th quarter is 4800 (2400 x 2).
- According to the learning rate of 70%, the artist's productivity should increase by 70% each quarter. This means that her productivity for the 2nd quarter should be 1.7 times what it was in the 1st quarter, her productivity for the 3rd quarter should be 1.7 times what it was in the 2nd quarter, and so on.
- To calculate the time requirement for each quarter, we need to divide the output by the artist's productivity. For example, for the 1st quarter, her productivity was 300 job outputs / 50 hours = 6 job outputs per hour. For the 2nd quarter, her productivity should be 6 x 1.7 = 10.2 job outputs per hour. Therefore, the time requirement for the 2nd quarter is 600 / 10.2 = 58.8235 hours (do not round).
- Similarly, the time requirements for the 3rd, 4th, and 5th quarters are:

3rd quarter: 1200 / (10.2 x 1.7) = 67.8161 hours
4th quarter: 2400 / (10.2 x 1.7 x 1.7) = 87.6995 hours
5th quarter: 4800 / (10.2 x 1.7 x 1.7 x 1.7) = 192.0803 hours (do not round)

Therefore, the total time requirement as of the 5th quarter is 50 + 58.8235 + 67.8161 + 87.6995 + 192.0803 = 456.4194 hours, which rounded to the nearest whole number is 456 hours.

Question 10

Deﬁne the term "relevant range" and explain its importance in understanding cost behavior.

Accepted Answer

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Question 11

Corrine Corporation, which uses least-squares regression analysis, has derived the following regression equation for estimates of manufacturing overhead: Y = 495,000 + 5.65X.Which of the following statements is true if the primary cost driver is machine hours?

Accepted Answer

The answer of Corrine Corporation, which uses least-squares regression analysis,...

Question 12

Berringer Designs hired a graphic artist.It is estimated that the artist's learning rate is at 70% and her ﬁrst quarter's output amounted to 300 relatively equal job outputs, which took her a total of 50 hours to complete.Output is expected to double in every succeeding quarter. By the 5th quarter, based on learning curve estimates, what should the artist's average time (in hours) be for the units of output?

Accepted Answer

We can use the following formula for learning curve:

Y = aX^b

Where:
Y = time per unit 
X = cumulative production in units 
a = time taken for the first unit
b = the learning rate (expressed as a decimal)

From the given data, we can find the values of "a" and "b":

a = 50 hours (total time taken for the first quarter)
b = log(0.7)/log2 = -0.151 (since the learning rate is given as 70%)

For the 5th quarter, the cumulative production would be:

X = 2^4 + 2^3 + 2^2 + 2^1 + 2^0 = 31 units of output

Using this value of X and the values of "a" and "b" in the formula, we get:

Y = 50(31^-0.151) = 12.005 hours

Therefore, the artist's average time per unit of output in the 5th quarter should be 12.005 hours (option C).

Question 13

Berringer Designs hired a graphic artist.It is estimated that the artist's learning rate is at 70% and her ﬁrst quarter's output amounted to 300 relatively equal job outputs, which took her a total of 50 hours to complete.Output is expected to double in every succeeding quarter. What is the total output as of the 5th quarter?

Accepted Answer

In the first quarter, the artist produced 300 job outputs.
In the second quarter, the artist's output is expected to double. Therefore, the output in the second quarter would be 300 x 2 = 600.
In the third quarter, the output is expected to double again. Therefore, the output in the third quarter would be 600 x 2 = 1,200.
In the fourth quarter, the output is expected to double again. Therefore, the output in the fourth quarter would be 1,200 x 2 = 2,400.
In the fifth quarter, the output is expected to double again. Therefore, the output in the fifth quarter would be 2,400 x 2 = 4,800.
Therefore, the total output as of the 5th quarter is 300 + 600 + 1,200 + 2,400 + 4,800 = 9,300 job outputs.

Question 14

Distinguish between least-squares regression and multiple regression as cost estimation methods.

Accepted Answer

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Question 15

Bogata Enterprises has determined that three variables play a key role in determining company revenues.To arrive at an objective forecast of revenues for the next accounting period, Bogata should use:

Accepted Answer

Since Bogata has identified three variables as key factors in determining revenues, multiple regression would be the best choice for forecasting revenues. Simple regression only considers one independent variable, while complex regression may not be necessary for this situation. A scatter diagram may be a helpful tool in visualizing the relationship between variables, but it does not provide a forecast. The high-low method is a basic method for estimating costs, but it may not be accurate when there are multiple variables at play.

Question 16

Both the visual-ﬁt and high-low methods of cost estimation have inherent limitations.Brieﬂy identify the major deﬁciency associated with each method.

Accepted Answer

The answer of Both the visual-ﬁt and high-low methods of...

Question 17

Which of the following tools is not associated with cost estimation?

Accepted Answer

Inversion equations are not associated with cost estimation. They are mathematical equations used in fields such as geophysics and image processing to solve for unknowns. Least-squares regression, multiple regression, time and motion studies, and learning curves are all tools commonly used in cost estimation.

Quiz 6: Activity Analysis, Cost Behavior, and Cost Estimation