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

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Question 1

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Lichtenstein Imports needs to determine the variable utilities rate per machine hour in order to estimate cost for August. Relevant information is as follows. Lichtenstein anticipates producing 5,000 units in August, each unit requiring 1.5 hours of machine time. The company uses the high-low method to analyze costs. Required: A. Calculate the variable and fixed components of the utilities cost. B. Using the data calculated above, estimate the utilities cost for August. C. Compare the high-low method versus the visual-fit method with respect to (1) number of data observations used in the analysis and (2) objectivity of the results.

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Question 2

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Within the relevant range, a curvilinear cost function can sometimes be graphed as a:

A) sloping straight line.
B) jagged line.
C) vertical straight line.
D) curved line.
E) horizontal straight line.

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Question 3

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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?

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?

Sophie Corporation recently produced and sold 100,000 units. Fixed costs at this level of activity amounted to $50,000; variable costs were $100,000. How much cost would the company anticipate if during the next period it produced and sold 102,000 units?

The relevant range is that range of activity:

The following data relate to the Torrence Company for May and August: - May and August were the lowest and highest activity levels, and Torrence uses the high-low method to analyze cost behavior. If maintenance hours are estimated to be 26,000 hours in October, which of the following statements is true?

In the least-squares regression method, the cost line is estimated so as to maximize the sum of the squared deviations between the cost line and the data points.

Which of the following costs changes in direct proportion to a change in the activity level?

Property taxes are an example of a (n) :

Within the relevant range of activity, costs:

The determination of cost behavior is called a cost prediction.

Cost that are nearly variable, but increase in small steps instead of continuously are called step-variable costs.

In regression analysis, the variable that is being predicted is known as the independent variable.

The slope of a regression line measures how steeply the cost line rises as activity increases.

The following selected data were taken from the accounting records of Colorado Enterprises:

Variable costs change in direct proportion to a change in the activity level.

Cost estimation typically focuses on the future.

The high-low method and least-squares regression are used by accountants to:

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