# Chap 8

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1. The objective of the fourth step in cost estimation, graphing the data, is intended to:
Identify unusual patterns.
2. Place the six cost estimation steps into the correct order:

1. Determine the cost drivers
2. Graph the data
3. Select and employ the appropriate estimation method
4. Define the cost object for which the related costs are to be estimated
5. Evaluate the accuracy of the cost estimate
6. Collect consistent and accurate data on the cost object and the cost drivers
4,1,6,2,3,5.
3. In least squares regression analysis, the cost to be estimated is the:
Dependent variable.
4. The independent variable in regression analysis is:
The cost driver used to estimate the value of the dependent variable.
5. MidgettCo.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 (\$51,840 ÷ 6,270) = \$8.27 (rounded to the nearest cent)r = .99821r2 = .99780 Using the high-low method, total maintenance cost for 600 hours is calculated to be (round to the nearest dollar):

TC = \$687 + (\$6.78 x 600) = \$4,755

High Low method
\$4,755.
6. 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:REGRESSION ANALYSISY (Dependent) Variable: Maintenance CostX (Independent) Variable: Maintenance Hours

A key statistic that indicates reliability of the regression is:
• 0.9964.
• The R-squared value is a key measure of reliability
7. A manager uses regression to express sales as a function of advertising expenditures (X1), and per capita income (X2) in your sales area. The following multiple linear regression equation is developed:Y = 10 + .51X1 + .45X2The coefficient of determination is .96 Determine which of the following conclusions is valid regarding the coefficient of determination:
The regression line fits the data used in the sample very well. There is a strong indication of the relationship of the two variables with sales.
8. 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 - \$1,000XWhere:A = number of customersB = advertising dollars per monthX = 1 if a winter monthX = 0 if other monthsAn appropriate interpretation of this model is that:
Within the relevant range, each additional customer will make a monthly purchase of \$4.70 on average.
9. As a preliminary step in the selection of variables to use in a statistical-forecasting model, the management accountant has calculated the coefficient of correlation between the firm's sales and three economic indexes. The results were as follows:

A .105
B -.009
C -.854

Which of the following statements indicates the best course of action for the auditor to take in the development of a forecasting model?
Guess: Drop all three indexes from further consideration because a coefficient of correlation of + 1.0 is necessary for a statistically significant relationship.

NOT: Include only index A in the model because it has the only positive coefficient of correlation.
10. High-low and regression cost estimation methods are alike in that they both:
Have an intercept term and a slope term.
11. The objective of the fourth step in cost estimation, graphing the data, is intended to:
Identify unusual patterns
12. Marshall Co. produced a pilot run of fifty units of a recently developed piston used in one of its products. Marshall expected to produce and sell 1,950 units annually. The pilot run required an average of .55 direct labor hours per piston for 50 pistons. Marshall experienced an eighty percent learning curve on the direct labor hours needed to produce new pistons. Past experience indicated that learning tends to cease by the time 800 pistons are produced.Marshall's manufacturing costs for pistons are presented below.

Marshall received a quote of \$9 per unit from Kytel Machine Co. for the additional 1,900 needed pistons. Marshall frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Kytel. If the pistons are manufactured by Marshall Co., the total direct labor hours for the first 800 pistons (including the pilot run) produced is calculated to be (round to two digits after the decimal point):
180.22.
13. 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 use of a relationship of total factory overhead to direct labor hours is said to be valid only within the relevant range, which means:
Within the range of observations of the cost driver.
14. Multiple regression analysis
Measures the change in one variable associated with the change in more than one other variable.
15. The standard error of the estimate (SE) in a regression analysis is:
A measure of the accuracy of the regression's estimates.
16. The following costs were for Optimal View Inc., a contact lens manufacturer

At an output level of 500 lenses, per unit total cost is projected to be:

FCost - 5200
Ver Cost 20000
\$50.40.
17. Regression analysis is better than the high-low method of cost estimation because regression analysis:
Can provide greater precision and reliability.
18. A data point that is outside the normal distribution of data is called an "outlier," which is often removed from the data before analysis because it:
Can distort the results of the data analysis.
19. Marshall Co. produced a pilot run of fifty units of a recently developed piston used in one of its products. Marshall expected to produce and sell 1,950 units annually. The pilot run required an average of .55 direct labor hours per piston for 50 pistons. Marshall experienced an eighty percent learning curve on the direct labor hours needed to produce new pistons. Past experience indicated that learning tends to cease by the time 800 pistons are produced.Marshall's manufacturing costs for pistons are presented below.

DL \$14 per DL hour
V-OH 12 per DL hour
F-OH 20 per DL hour
Mat   5  per unit

Marshall received a quote of \$9 per unit from Kytel Machine Co. for the additional 1,900 needed pistons. Marshall frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Kytel. If the pistons are manufactured by Marshall Co., the average direct labor hours per unit for the first 800 pistons (including the pilot run) produced is calculated to be (use five decimal places in calculating the average time):
0.22528.

.55 *80% = X * 80% till .22528
 Author: Anonymous ID: 306050 Card Set: Chap 8 Updated: 2015-08-05 03:17:18 Tags: Accounting Folders: Description: Chap 8 Cost accounting Show Answers: