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Cost Management: A Strategic Emphasis, 8e (Blocher) Chapter 8 Cost Estimation Which of the four types of cost drivers-activity-based, volume-based, structural and executional-are often best related to linear cost estimation methods? A) Activity-based only. B) Activity-based and volume-based. C) Stru...

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Cost Management: A Strategic Emphasis, 8e (Blocher) Chapter 8 Cost Estimation 1) Which of the four types of cost drivers-activity-based, volume-based, structural and executional-are often best related to linear cost estimation methods? A) Activity-based only. B) Activity-based and volume-based. C) Structural and volume-based. D) Executional and volume-based. E) Structural and executional. 2) Which of the following five steps (out of six) of cost estimation is out of order? A) Step 1: Define the cost object to be estimated. B) Step 2: Determine the cost driver(s). C) Step 3: Collect relevant data on the cost of the cost object and the cost driver. D) Step 4: Evaluate the accuracy of the cost estimate. E) Step 5: Select and employ the estimation method. 3) The identification of cost drivers is perhaps the most important step in developing the cost estimate because: A) It is the first step in cost estimation. B) It is the final step in cost estimation. C) There may be a number of relevant drivers, some not immediately obvious. D) The other steps are easier to execute. E) It requires much more time than the other steps. 4) Technology and complexity issues often lead management to simplify and to: A) Use linear estimation methods. B) Use volume-based costing and nonlinear estimation methods. C) Use volume-based costing methods. D) Use nonlinear estimation methods. E) Use activity-based costing and volume-based costing methods. 5) Data collected on the cost objects and cost drivers for cost estimation must be: A) Brief and limited. B) Exhaustive. C) Concrete. D) Consistent and accurate. E) Varied. 6) The objective of the fourth step in cost estimation, graphing the data, is intended to: A) Identify unusual patterns. B) Show data in two dimensions. C) Enhance the cost estimation process. D) Allow for subjectivity in cost estimation.

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7) Selection and employment of the correct estimation method is: A) Easy once the data is gathered. B) Relatively easy because only two effective methods exist. C) Dependent on the accuracy/cost tradeoff for the estimation objectives. D) Primarily subjective in nature. E) Difficult because so many effective methods are available. 8) Regression analysis is better than the high-low method of cost estimation because regression analysis: A) Is mathematical. B) Can provide greater precision and reliability. C) Fits data into a mathematical equation. D) Takes less time. E) Is a statistical method. 9) When there are two or more cost drivers, regression is termed: A) Simple. B) Binary. C) Multiple. D) Curvilinear. E) Synergistic. 10) The independent variable in regression analysis is: A) The cost to be estimated. B) The cost driver used to estimate the value of the dependent variable. C) Hard to define because of its independence. D) Usually expressed as a range of values. E) Always a volume-based cost driver. 11) High-low and regression cost estimation methods are alike in that they both: A) Have an intercept term and a slope term. B) Have an intercept term but not a slope term. C) Have a slope term but not an intercept term. D) Use all data points. E) Use only a few selected data points. 12) 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: A) Leads to unbiased calculations. B) Can distort the results of the data analysis. C) Has an upward bias on the statistical measures in regression. D) Will always add bias to the results of a high-low analysis.

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13) A variable used in regression analysis that represents the presence or absence of a condition, e.g., seasonality, is called a(n): A) Random variable. B) Dummy variable. C) Constant term variable. D) Correlating variable. E) Fixed term variable. 14) An R-squared value that approaches one (1.0) would indicate: A) An average degree of explanatory power. B) A low degree of explanatory power. C) A high degree of explanatory power. D) The presence of outliers. E) The absence of outliers. 15) Extending the length of a time period in cost estimation will result in: A) Fewer recording lags or cut-off errors. B) Confounding data. C) Increasing the explanatory power of the data. D) Better results because more data is being used. E) More recording lags or cut-off errors. 16) The learning curve in cost estimation is a good example of: A) Non-linear cost behavior. B) Machine-intensive production. C) Simple regression. D) A random variable. E) Efficient labor. 17) Which one of the following cost estimation methods is the most accurate? A) Regression analysis. B) Visual fit. C) Subjective forecasting. D) The high-low method. 18) In least squares regression analysis, the cost to be estimated is the: A) Independent variable. B) Dependent variable. C) Cost object D) Outlier. E) Dummy variable.

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19) Which one the following is a variable that takes on values of 1, 2, 3, … for each period in sequence? A) Dummy variable. B) Price change index. C) Trend variable. D) Dependent variable. E) Independent variable. 20) Felinas Inc. produces floor mats for cars and trucks. The owner, Kenneth Felinas, asked you to assist him in estimating his maintenance costs. Together, Mr. Felinas and you determined that the single best cost driver for maintenance costs was machine hours. Below are data from the previous fiscal year for maintenance expense and machine hours: Month 1

Maintenance Expense $

Machine Hours

3,120

2,200

2

3,310

2,300

3

3,490

2,400

4

3,620

2,430

5

3,620

2,280

6

3,680

2,440

7

3,610

2,420

8

3,420

2,390

9

3,140

2,210

10

2,880

2,080

11

2,780

1,690

12

2,940

2,070

Using the high-low method, unit variable cost is calculated to be: A) $1.31. B) $1.59. C) $1.36. D) $1.14. E) $1.20.

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21) Felinas Inc. produces floor mats for cars and trucks. The owner, Kenneth Felinas, asked you to assist him in estimating his maintenance costs. Together, Mr. Felinas and you determined that the single best cost driver for maintenance costs was machine hours. Below are data from the previous fiscal year for maintenance expense and machine hours:

Month 1

Maintenance Expense $ 3,120

Machine Hours 2,200

2

3,310

2,300

3

3,490

2,400

4

3,620

2,430

5

3,620

2,280

6

3,680

2,440

7

3,610

2,420

8

3,420

2,390

9

3,140

2,210

10

2,880

2,080

11

2,780

1,690

12

2,940

2,070

Using the high-low method, total monthly fixed cost is calculated to be: A) $484. B) $364. C) $752. D) $259. E) $898. 22) Audio Zone Co. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month Jan. Feb. Mar. Apr. May June

Total Overhead $ 6,288 6,460 5,987 5,559 6,032 6,341

Machine Hours 1,980 2,090 1,745 1,560 1,865 2,012

Using the high-low method, unit variable overhead cost is calculated to be: 5 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

A) $1.40 B) $1.50 C) $1.60 D) $1.70 E) $1.80

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23) Audio Zone Co. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month Jan. Feb. Mar. Apr. May June

Total Overhead $ 6,288 6,460 5,987 5,559 6,032 6,341

Machine Hours 1,980 2,090 1,745 1,560 1,865 2,012

Using the high-low method, total monthly fixed overhead cost is calculated to be: A) $2,626. B) $2,698. C) $2,512. D) $2,907. E) $2,833. 24) Thompson Refrigerators Inc. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month Jan.

Total Overhead $ 8,258

Machine Hours 2,134

Feb.

8,006

2,045

Mar.

8,387

2,276

Apr.

8,832

2,743

May

8,921

2,834

June

7,841

2,034

Using the high-low method, unit variable overhead cost is calculated to be: A) $1.35. B) $1.15. C) $1.40. D) $1.65. E) $1.25.

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25) Thompson Refrigerators Inc. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month Jan.

Total Overhead $

Machine Hours

8,258

2,134

Feb.

8,006

2,045

Mar.

8,387

2,276

Apr.

8,832

2,743

May

8,921

2,834

June

7,841

2,034

Using the high-low method, total monthly fixed overhead cost is calculated to be: A) $5,095.10 B) $5,462.80 C) $5,661.90 D) $5,875.30 E) $5,966.40 26) Home Remodeling Inc. recently obtained a short-term bank loan from City National Bank. The bank required that certain credit information and pro forma financial statements be maintained through the life of the loan. In order to prepare the pro forma statements, Home Remodeling must forecast total overhead cost. The actual machine hours and overhead cost are presented below for the past six months.

Month January

Overhead Cost $ 3,185

Machine Hours 1,274

February

3,484

1,394

March

2,996

1,150

April

3,210

1,235

May

3,315

1,230

June

3,440

1,300

Using the high-low method, unit variable overhead cost is calculated to be: A) $2.49. B) $3.40. C) $2.06. D) $2.60. E) $2.00. 8 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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27) Home Remodeling Inc. recently obtained a short-term bank loan from City National Bank. The bank required that certain credit information and pro forma financial statements be maintained through the life of the loan. In order to prepare the pro forma statements, Home Remodeling must forecast total overhead cost. The actual machine hours and overhead cost are presented below for the past six months. Month January

Overhead Cost $ 3,185

Machine Hours 1,274

February

3,484

1,394

March

2,996

1,150

April

3,210

1,235

May

3,315

1,230

June

3,440

1,300

Using the high-low method, total monthly fixed overhead cost is calculated to be: A) $626. B) $696. C) $612. D) $690. E) $722. 28) CalcuCo hired Effner & Associates to design a new computer-aided manufacturing facility. The new facility was designed to produce 300 computers per month. The variable costs for each computer are $660 and the fixed costs total $74,700 per month. The average cost per unit, if the facility normally expects to operate at eighty-five percent of capacity, is calculated to be (round to nearest cent): A) $952.94. B) $909.00. C) $936.67. D) $971.25. E) $942.47. 29) Nellibell's Café bakes croissants that are sold to local restaurants and grocery stores in the Columbia, South Carolina area. When 600 croissants are baked, the average cost is $0.70. When 720 croissants are baked, the average cost is $0.65. What is the total cost when 670 croissants are baked? A) $568. B) $588. C) $448. D) $532. E) $500. 10 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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30) The following costs were for Optimal View Inc., a contact lens manufacturer: Output 300 350 400 450

Fixed Cost $ 5,200 5,200 5,200 5,200

Variable Cost $ 12,000 14,000 16,000 18,000

Total Costs $ 17,200 19,200 21,200 23,200

At an output level of 425 lenses, per unit variable cost is calculated to be: A) $34.29. B) $48.00. C) $30.00. D) $35.56. E) $40.00. 31) The following costs were for Optimal View Inc., a contact lens manufacturer: Output 300 350 400 450

Fixed Cost $ 5,200 5,200 5,200 5,200

Variable Cost $ 12,000 14,000 16,000 18,000

Total Costs $ 17,200 19,200 21,200 23,200

At an output level of 500 lenses, per unit total cost is projected to be: A) $45.85. B) $56.67. C) $39.45. D) $50.40. E) $48.56.

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32) Midgett 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. 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: Month Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Sum Average

Maintenance Cost $ 5,040 3,648 4,320 3,331 5,221 3,550 3,655 5,365 5,110 4,866 3,944 3,790 $ 51,840 $ 4,320.00

Machine Hours 620 420 520 390 650 400 430 690 640 610 460 440 6,270 522.50

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent) r = 0.99743 r2 = 0.99487 Using the high-low method, unit variable cost is calculated to be (round to the nearest cent): A) $6.83. B) $8.67. C) $6.78. D) $7.88. E) $6.48.

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33) Midgett 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. 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: Month Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Sum Average

Maintenance Cost $ 5,040 3,648 4,320 3,331 5,221 3,550 3,655 5,365 5,110 4,866 3,944 3,790 $ 51,840 $ 4,320.00

Machine Hours 620 420 520 390 650 400 430 690 640 610 460 440 6,270 522.50

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent) r = 0.99743 r2 = 0.99487 Using the high-low method, total monthly fixed cost is calculated to be (round to nearest dollar): A) $757. B) $687. C) $756. D) $733. E) $717.

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34) Midgett 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. 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: Month Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Sum Average

Maintenance Cost $ 5,040 3,648 4,320 3,331 5,221 3,550 3,655 5,365 5,110 4,866 3,944 3,790 $ 51,840 $ 4,320.00

Machine Hours 620 420 520 390 650 400 430 690 640 610 460 440 6,270 522.50

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent) r = 0.99821 r2 = 0.99780 Using the high-low method, total maintenance cost for 600 hours is calculated to be (round to the nearest dollar): A) $5,293. B) $4,777. C) $5,528. D) $4,755. E) $5,656.

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35) Midgett 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. 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: Month Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Sum Average

Maintenance Cost $ 5,040 3,648 4,320 3,331 5,221 3,550 3,655 5,365 5,110 4,866 3,944 3,790 $ 51,840 $ 4,320.00

Machine Hours 620 420 520 390 650 400 430 690 640 610 460 440 6,270 522.50

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent) r = 0.99821 r2 = 0.99780 The percent of the total variance that can be explained by the regression equation is: A) 99.821%. B) 69.670%. C) 81.049% D) 99.780%. E) 99.642%.

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36) 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 d...