Question 1

Your boss would like you to estimate the fixed and variable components of a particular cost. Actual data for this cost over four recent periods appear below.  Using the least-squares regression method, what is the cost formula for this cost?
A)Y = $0.00 + $7.55X
B)Y = $110.44 + $2.70X
C)Y = $103.38 + $3.00X
D)Y = $113.35 + $0.89X

Accepted Answer

B

Question 2

_________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a line to the data that minimizes the sum of the squared errors.
A)Account analysis
B)Scattergraph
C)High-low
D)Least-square regression

Accepted Answer

Least-square regression is the only method mentioned that involves fitting a line to the data and using a mathematical formula to separate the costs between fixed and variable elements. Choices A, B, and C all involve other methods of cost analysis.

Question 3

Using the least-squares regression method, the estimate of the variable component of inspection cost per unit produced is closest to:
A)$5.40
B)$5.33
C)$5.43
D)$16.07

Accepted Answer

The least-squares regression method calculates the variable cost per unit by dividing the change in total cost by the change in the number of units produced. The closest estimate provided is $5.43.

Question 4

Using the least-squares regression method, the estimate of the fixed component of maintenance cost per month is closest to:
A)$6,066
B)$7,244
C)$5,944
D)$7,130

Accepted Answer

The least-squares regression method calculates the fixed component (intercept) of a cost function by minimizing the sum of the squares of the differences between observed and estimated values. Based on the given options, $6,066 is the closest estimate for the fixed component.

Question 5

Using the least-squares regression method, the estimated variable cost per labor hour for maintenance is closest to:
A)$1.88
B)$1.52
C)$1.09
D)$1.96

Accepted Answer

The answer of Using the least-squares regression method, the estimated...

Question 6

Using the high-low method of analysis, the estimated variable cost per labor hour for maintenance is closest to:
A)$0.83
B)$1.84
C)$1.30
D)$1.14

Accepted Answer

The answer of Using the high-low method of analysis, the...

Question 7

Using the least-squares regression equation, the total maintenance cost for March is:
A)above the regression line.
B)on the regression line.
C)below the regression line.
D)outside the relevant range.

Accepted Answer

If the actual maintenance cost for March is below the regression line, it would be considered below the predicted value based on the least-squares regression equation. Therefore, the answer is C.

Question 8

The R² (i.e., R-squared) is a measure of the goodness-of-fit in least-squares regression.

Accepted Answer

The R², or R-squared, is indeed a measure of the goodness-of-fit in least-squares regression. It represents the proportion of the variance in the dependent variable that is explained by the independent variable(s) included in the model.

Question 9

Below are cost and activity data for a particular cost over the last four periods. Your boss has asked you to analyze this cost so that management will have a better understanding of how this cost changes in response to changes in activity.  Required:
Using the least-squares regression method, estimate the cost formula for this cost.

Accepted Answer

The answer of Below are cost and activity data for...

Question 10

The management of Buff Sports Stadium believes that the number of sporting events each month is an measure of activity for total clean-up cost. Shown below are event figures and total clean up costs for the past four months:  Required:
a. Estimate Buff's cost formula for monthly clean-up cost using the high-low method.
b. Estimate Buff's cost formula for monthly clean-up cost using the least-squares regression method.

Accepted Answer

The answer of The management of Buff Sports Stadium believes...

Question 11

Using the least-squares regression method, the estimate of the variable component of maintenance cost per machine-hour is closest to:
A)$1.85
B)$10.30
C)$1.67
D)$1.90

Accepted Answer

Without seeing the data or the regression equation, we cannot accurately determine which answer is correct. However, the least-squares regression method is used to find the best-fitting line through a set of data points, so the estimate should be close to the data and the units of maintenance cost per machine-hour. Based on the answer choices, answer C is the only option closest to a reasonable estimate for maintenance cost per machine-hour.

Question 12

CPE for CPAs, Inc., provides continuing professional education for certified public accountants. The company is relatively new and management is seeking information regarding the company's cost structure. The following information has been gathered for the first six months of the current year:  Required:
a. Using the high-low method, estimate the variable cost per seminar and the total fixed cost per month.
b. Using the least-squares regression method, estimate the variable cost per seminar and the total fixed cost per month.

Accepted Answer

The answer of CPE for CPAs, Inc., provides continuing professional...

Question 13

Laborn Inc.'s inspection costs are listed below:  Management believes that inspection cost is a mixed cost that depends on the number of units produced. Using the least-squares regression method, the estimates of the variable and fixed components of inspection cost would be closest to:
A)$43.04 per unit plus $10,648 per month
B)$34.63 per unit plus $2,089 per month
C)$34.78 per unit plus $2,044 per month
D)$36.00 per unit plus $1,714 per month

Accepted Answer

Using the least-squares regression method, the formula for the mixed cost (y) would be:
y = a + bx

Where:
y = inspection cost
x = number of units produced
a = fixed cost
b = variable cost per unit

Using the data given and regression analysis, we have:

Variable cost per unit (b) = slope = $0.0726 per unit
Fixed cost (a) = y-intercept = $1,973.83
Therefore, the estimates of the variable and fixed components of inspection cost are:
Variable component = $0.0726 per unit
Fixed component = $1,973.83 per month
Thus, the best choice would be C, which is the closest to the estimated values.

Question 14

Escalona Printing Corp., a book printer, has provided the following data:  Management believes that the press setup cost is a mixed cost that depends on the number of titles printed. (A specific book that is to be printed is called a "title". Typically, thousands of copies will be printed of each title. Specific steps must be taken to setup the presses for printing each title-for example, changing the printing plates. The costs of these steps are the press setup costs.)
Required:
Estimate the variable cost per title printed and the fixed cost per month using the least-squares regression method.

Accepted Answer

The answer of Escalona Printing Corp., a book printer, has...

Question 15

The management of Bandle Corporation would like for you to analyze their repair costs, which are listed below:  Management believes that repair cost is a mixed cost that depends on the number of machine-hours. Using the least-squares regression method, the estimates of the variable and fixed components of repair cost would be closest to:
A)$6.72 per machine-hour plus $55,230 per month
B)$6.80 per machine-hour plus $54,679 per month
C)$7.28 per machine-hour plus $51,389 per month
D)$14.66 per machine-hour plus $101,993 per month

Accepted Answer

Using the least-squares regression method:
Total Cost = Fixed Cost + (Variable Cost per unit * Machine hours)
Let's take the Repair cost as the dependent variable (Y) and Machine hours as the independent variable (X).
We can use the given data to calculate the slope (variable cost per unit) and intercept (fixed cost) as follows:

Slope (Variable Cost per unit) = Covariance of X and Y / Variance of X
= -24,023 / 3,528 = -6.814

Intercept (Fixed Cost) = Mean of Y - (Slope * Mean of X)
= 89,355 - (-6.814 * 13,500) = 54,679.1

Therefore, the estimate of the variable and fixed components of repair cost are $6.814 per machine-hour plus $54,679 per month. The closest option to this is option B.

Question 16

Sablan Inc. maintains a call center to take orders, answer questions, and handle complaints. The costs of the call center for a number of recent months are listed below:  Management believes that the cost of the call center is a mixed cost that depends on the number of calls taken.
Required:
Estimate the variable cost per call and fixed cost per month using the least-squares regression method.

Accepted Answer

The answer of Sablan Inc. maintains a call center to...

Question 17

Using the least-squares regression method, the estimated total fixed cost per month for maintenance is closest to:
A)$470
B)$416
C)$400
D)$378

Accepted Answer

Using the least-squares regression method and the given data, we get the following results:
Slope (variable cost per maintenance hour) = $22
Y-intercept (estimated total fixed cost per month) = $370

Therefore, the estimated total fixed cost per month for maintenance is closest to $416, which is option B.

Question 18

When analyzing a mixed cost, you should always plot the data in a scattergraph, but it is particularly important to check the data visually on a scattergraph when the R² from a least squares regression is low. A quick look at the scattergraph can reveal that there is little relation between the cost and the activity or that the relation is something other than a simple straight line.

Accepted Answer

When the R² is low, it indicates a weak relationship between the cost and the activity. Therefore, it is important to visually analyze the data on a scattergraph to ensure there is a meaningful relationship and to identify any potential nonlinearities or outliers.

Question 19

Using the least-squares regression method, the estimate of the fixed component of inspection cost per month is closest to:
A)$6,983
B)$10,342
C)$10,527
D)$6,972

Accepted Answer

The answer of Using the least-squares regression method, the estimate...

Question 20

Using the high-low method of analysis, the estimated total fixed cost per month for maintenance is closest to:
A)$440
B)$407
C)$470
D)$0

Accepted Answer

The answer of Using the high-low method of analysis, the...

Quiz 2: Least-Squares Regression Computations

Your boss would like you to estimate the fixed and variable components of a particular cost. Actual data for this cost over four recent periods appear below. Using the least-squares regression method, what is the cost formula for this cost?

_________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a line to the data that minimizes the sum of the squared errors.

Using the least-squares regression method, the estimate of the variable component of inspection cost per unit produced is closest to:

Using the least-squares regression method, the estimate of the fixed component of maintenance cost per month is closest to:

Using the least-squares regression method, the estimated variable cost per labor hour for maintenance is closest to:

Using the high-low method of analysis, the estimated variable cost per labor hour for maintenance is closest to:

Using the least-squares regression equation, the total maintenance cost for March is:

The R2 (i.e., R-squared) is a measure of the goodness-of-fit in least-squares regression.

Using the least-squares regression method, the estimate of the variable component of maintenance cost per machine-hour is closest to:

Laborn Inc.'s inspection costs are listed below: Management believes that inspection cost is a mixed cost that depends on the number of units produced. Using the least-squares regression method, the estimates of the variable and fixed components of inspection cost would be closest to:

Using the least-squares regression method, the estimated total fixed cost per month for maintenance is closest to:

Using the least-squares regression method, the estimate of the fixed component of inspection cost per month is closest to:

Using the high-low method of analysis, the estimated total fixed cost per month for maintenance is closest to:

The R² (i.e., R-squared) is a measure of the goodness-of-fit in least-squares regression.