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Exam 8: Cost Estimation

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Question 21

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Austen Co. produced a pilot run of eighty units of a recently developed part used in the finished products. Austen Co. expects to produce and sell 2,560 units annually. The pilot run required 40 direct labor hours for the eighty units, averaging 0.5 direct labor hours per unit. Austen experiences an eighty percent learning curve. Required: Calculate the average direct labor hours per unit for the first 2,560 units (including the pilot run) produced.

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Question 22

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Which of the following means that two or more independent variables are highly correlated with each other?

A) Correlation.
B) t-value.
C) R-Squared.
D) Standard error.
E) Multicollinearity.

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Question 23

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A key statistic that indicates reliability of the regression is:

The equation was probably found through the use of which of the following mathematical techniques?

The 95% confidence range for a prediction of monthly manufacturing cost using the model is:

Using the high-low method, unit variable cost is calculated to be:

Which of the following five steps (out of six) of cost estimation is out of order?

Clothes for U is a large merchandiser of apparel for budget-minded families. Management recently became concerned about the amount of inventory carrying costs and transportation costs between warehouses and retail outlets. As a starting point in further analyses, Gregory Gonzales, the controller, wants to test different forecasting methods and then use the best one to forecast quarterly expenses for 2013. The relevant data for the previous three years follows: The results of a simple regression analysis using all 12 data points yielded an intercept of $11,854.55 and a coefficient for the independent variable of $126.22 (R-squared = .19, t = 1.5, SE = 974). Required: (1) Calculate the quarterly forecasts for 2013 using the high-low method and regression analysis. Recommend which method Gregory should use and explain why. (2) How does your analysis in requirement 1 change if Clothes for U is involved in global sourcing of products for its stores?

Companies such as Walmart and UPS are committed to reducing cost and improving their competitive position through sustainability efforts. Walmart and UPS have both reduced significantly the amount of fuel used in their truck fleets. Required: Suggest how regression and correlation analysis might be used to supplement the efforts of companies like Walmart and UPS to improve the fuel efficiency of their trucks.

Using the high-low technique, estimate the annual fixed cost for maintenance expenditures:

Which of the following is not used for evaluating a regression analysis?

Bradford Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost: C = $80,000 + $12M Where: C = monthly manufacturing overhead cost, and M = machine hours The standard error of estimate of the regression is $6,000. The standard time required to manufacture one six-unit case of Bradford's single product is two machine hours. Bradford applies manufacturing overhead to production on the basis of machine hours, and its normal annual production is 50,000 cases. Bradford's estimated variable manufacturing overhead cost for a month in which scheduled production is 5,000 cases would be:

The percent of the total variance that can be explained by the regression equation is:

Which of the following is not a step in the cost estimation process?

Two aspects to consider when selecting the time period for cost estimation are:

Whittenberg Distributors, a major retailing and mail-order operation, has been in business for the past 10 years. During that time, its mail-order operations have grown from a sideline to represent more than 80 percent of the company's annual sales. Of course, the company has suffered growing pains. At times, overloaded or faulty computer programs resulted in lost sales. And scheduling temporary workers to augment the permanent staff during peak periods has always been a problem. Peter Bloom, manager of mail-order operations, has developed procedures for handling most problems. However, he is still trying to improve the scheduling of temporary workers to take customer telephone orders. Under the current system, Peter keeps a permanent staff of 60 employees who handle the base telephone workload and supplements this staff with temporary workers as needed. The temporary workers are hired on a daily basis; he determines the number needed for the next day the afternoon before based on his estimate of the upcoming telephone volume. Peter has decided to try regression analysis to improve the hiring of temporary workers. By summarizing the daily labor-hours into weekly totals for the past year, he determined the number of workers used each week. In addition, he listed the number of orders processed each week. After entering the data into a spreadsheet, Peter ran two regressions. Regression 1 related the total number of workers (permanent staff plus temporary workers) to the number of orders received. Regression 2 related only temporary workers to the number of orders received. The output of these analyses follows: Regression model: W = a + b × T where: W = workers; T = telephone orders Required: 1. Peter Bloom estimates that Whittenberg Distributors will receive 12,740 orders during the second week of December. a. Predict the number of temporary workers needed for this week using regression 1. Round your answer to the nearest whole number. b. Using regression 2, predict the number of temporary workers needed during this week. Round your answer to the nearest whole number. 2. Which of the two regression analyses appears to be better? Explain your answer. 3. Describe at least three ways that Peter Bloom could improve his analysis to make better predictions than either of these regression results provides. (CMA Adapted)

The high-low method:

Accurate cost estimates are required by strategic management for all except:

A range around the regression line within which the management accountant can rely that the actual value of the predicted cost will fall is referred to as:

Multiple regression analysis: