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Exam 10: Determining How Costs Behave

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Question 31

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Dandy 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: Required: a.What are the estimating equations for each cost driver? b.Which cost driver is best and why?

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a.Machine-hoursy = $748.30 + $52.90X
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Question 32

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An "economy of scale" function is an example of a linear cost function.

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Question 33

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

Jake's Copy Center hires a new employee. Jake knows he has to be patient with the employee until the employee gains enough experience to meet production standards. Jake is unsure of the learning curve in his operation, but he knows the first job by a new employee averages 50 minutes and the second job averages 40 minutes. Assume all jobs to be equal in size. Required: a.What is the learning-curve percentage, assuming the cumulative average-time method? b.What is the time for a new employee to do 32 jobs with this learning curve using the cumulative average-time method? You may use an index of ?0.1520.

Which of the following is a step to overcome problems related to data collection for estimating cost function?

A cost driver should be measurable and have an economically plausible relationship with the dependent variable which means:

Which of the following is an example of nonlinear cost function?

Grandy's Beer was to manufacture 600 cases of ale next week. The accountant provided the following analysis of total manufacturing costs. What is the estimated cost of producing the 600 cases of ale?

The account analysis method of cost estimation classifies account costs as fixed, mixed, or variable using qualitative judgments.

High Tech Manufacturing Inc., incurred total indirect manufacturing labor costs of $550,000. The company is labor intensive. Total labor hours during the period were 4,400. Using qualitative analysis, the manager and the management accountant determine that over the period the indirect manufacturing labor costs are mixed costs with only one cost driver-labor-hours. They separated the total indirect manufacturing labor costs into costs that are fixed ($120,000 based on 8,700 hours of labor) and costs that are variable ($430,000) based on the number of labor-hours used. The company has estimated 6,900 labor hours during the next period. What will be the total variable cost for the estimated 6,900 hours? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

The cost function y = 300 + 2X ________.

High Tech Manufacturing Inc., incurred total indirect manufacturing labor costs of $480,000. The company is labor intensive. Total labor hours during the period were 4,400. Using qualitative analysis, the manager and the management accountant determine that over the period the indirect manufacturing labor costs are mixed costs with only one cost driver-labor-hours. They separated the total indirect manufacturing labor costs into costs that are fixed ($130,000 based on 8,100 hours of labor) and costs that are variable based on the number of labor-hours used. The company has estimated 7,700 labor hours during the next period. What will be the total cost for the estimated 7,700 hours? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

The advantages of the high-low method to estimate a cost function is that it is easy and accurate.

An experience curve is a function that measures the decline in cost per unit in various business functions of the value chain as the amount of these activities increases.

An example of a physical cause-and-effect relationship is when additional units of production increase total direct material costs.

Quantum Company uses the high-low method to estimate the cost function. The information for 2017 is provided below: What is the estimated cost function for the above data?

A cost function is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost.

Harold's Picture manufactures various picture frames. Each new employee takes 6 hours to make the first picture frame and 4.8 hours to make the second. The manufacturing overhead charge per hour is $25. Required: a.What is the learning-curve percentage, assuming the cumulative average method? b.What is the time needed to build 8 picture frames by a new employee using the cumulative average-time method? You may use an index of ?0.1520. c.What is the time needed to produce the 16th frame by a new employee using the incremental unit-time method? You may use an index of ?0.3219. d.How much manufacturing overhead would be charged to the 16 picture frames using the average-time approach?

Which of the following is not a nonlinear cost function?

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