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Exam 3: Determining How Costs Behave

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Question 31

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Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver. a.Direct manufacturing labour is $10 per hour. b.Direct materials cost $9.20 per cubic metre. c.Utilities have a minimum charge of $1000,plus a charge of $0.05 per kilowatt-hour. d.Machine operating costs include $200 000 of machine depreciation per year,plus $75 of utility costs for each day the machinery is in operation. _____________________________________________________________________________________________ _____________________________________________________________________________________________

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a.y = $10X
b.y = $9....

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Question 32

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Yarrawonga Company has provided the following information: $\begin{array}{lrr}\text { Units of Output }&30000 \text { Units } &42000 \text { Units }\\\text { Direct materials } & \$ 180000 & \$ 252000 \\\text { Workers' wages } & 1080000 & 1512000 \\\text { Supervisors' salaries } & 312000 & 312000 \\\text { Equipment depreciation } & 151200 & 151200 \\\text { Maintenance } & 81600 & 110400 \\\text { Utilities } & \underline{384000} & \underline{528000} \\\text { Total } & \$ 2 \underline{188800} & \$ 2865600\end{array}$ Using the high-low method and the information provided above: a.identify the linear cost function equation;and b.estimate the total cost at 36 000 units of output. _____________________________________________________________________________________________ ____________________________________________________________________________________________

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a.Variable cost = ($2 865 600 - $2 188 8...

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Question 33

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Wallaby Manufacturing Company uses two different independent variables (machine-hours and number of packages)in two different equations to evaluate costs of the packaging department.The most recent results of the two regressions are as follows: $\text { Machine-hours: }$ $\begin{array} { l r r r } \text { Variable } & \text { Coefficient } & \text { StandardError } & \text {-Value } \\ \text { Constant } & \$ 748.30 & \$ 341.20 & 2.19 \\\text { Independent Variable } & \$ 52.90 & \$ 35.20 & 1.50 \end{array}$ $r ^ { 2 } = 0.33$ $\text { Number of packages: }$ $\begin{array}{l}\begin{array}{lrrr}\text { Variable } & \text { Coefficient } & \text { StandardError } & \text {-Value } \\ \text { Constant } & \$ 242.90 & \$ 75.04 & 3.24 \\\text { Independent Variable } & \$ 5.60 & \$ 2.00 & 2.80\end{array}\\r^{2}=0.73\end{array}$ Required: a.What are the estimating equations for each cost driver? b.Which cost driver is best and why? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which statement related to assumptions about estimating linear cost functions is FALSE?

An example of time-series data is to compile maintenance costs of 12 different manufacturing plants incurred during 2018.

Which cost estimation method may use time-and-motion studies to analyse the relationship between inputs and outputs in physical terms?

Over the short run,a non-linear cost function would MOST likely result from all of the following EXCEPT:

'Regression analysis' relies on only two observations to estimate a linear cost function.

Answer the following questions using the information below: The Yeppoon Company uses the high-low method to estimate its cost function.The information for 2018 is provided below: $\begin{array} { l c c } & \text { Machine-hours } & \text { Costs } \\\text { Highest observation of cost driver } & 2000 & \$ 225000 \\\text { Lowest observation of cost driver } & 1000 & \$ 125000\end{array}$ -What is the slope coefficient per machine-hour?

The new cost analyst in your accounting department has just received a computer-generated report that contains the results of a simple regression program for cost estimation.The summary results of the report appear as follows: $\begin{array}{l}\begin{array} { l c c c } \text { Variable } & \text { Coefficient } & \text { Standard Error } & \text { t-Value } \\\text { Constant } & \$ 35.92 & \$ 16.02 & 2.24 \\\text { Independent variable } & \$ 563.80 & \$ 205.40 & 2.74\end{array}\\\mathrm { r } ^ { 2 } = 0.75\end{array}$ Required: a.What is the cost estimation equation according to the report? b.What is the goodness of fit? What does it tell about the estimating equation? _____________________________________________________________________________________________ _____________________________________________________________________________________________

When fixed costs are allocated to individual products as part of the standard costing system,they should be treated as variable costs for purposes of future cost estimation.

Examples of non-linear cost functions include all of the following EXCEPT:

The 'independent variable':

An inaccurate cost function with a slope coefficient that is estimated too low may MOST likely result in:

When estimating a cost function,cost behaviour can be approximated by a linear cost function within the relevant range.

Machine-hours is a more economically plausible cost driver of machine maintenance than number of direct manufacturing labour-hours.

How many separate cost pools should be formed given the following information:

The 'conference method' estimates cost functions:

Answer the following questions using the information below: Presented below are the production data for the first six months of the year for the mixed costs incurred by Benalla Company. $\begin{array} { l r r } \text { Month } & \text { Cost } & \text { Units } \\\text { January } & \$ 4890 & 4100 \\\text { February } & 4024 & 3200 \\\text { March } & 6480 & 5300 \\\text { April } & 8840 & 7500 \\\text { May } & 5800 & 4800 \\\text { June } & 7336 & 6600\end{array}$ Benalla Company uses the 'high-low method' to analyse mixed costs. -How would the cost function be stated?

If machine maintenance is scheduled at a time when production is at a low level,then: