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Practice Questions Cost Behaviour

High-low and regression cost estimation methods both have an intercept term and slope term. An R-squared value approaching 1 indicates a high degree of explanatory power. Using the high-low method on the data provided, the total cost for baking 670 croissants is $448.

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Camila Miranda Kanda
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717 views6 pages

Practice Questions Cost Behaviour

High-low and regression cost estimation methods both have an intercept term and slope term. An R-squared value approaching 1 indicates a high degree of explanatory power. Using the high-low method on the data provided, the total cost for baking 670 croissants is $448.

Uploaded by

Camila Miranda Kanda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1.

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

2. 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

3. 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

Use the following information to answer the next two questions:


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:

Maintenance Machine
Month Expense Hours
1 $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
4. 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

5. Using the high-low method, total monthly fixed cost is calculated to be:
a. $484
b. $364
c. $752
d. $259
e. $89

6. The Vern Corporation has assembled the following data pertaining to certain costs which
cannot be easily identified as either fixed or variable. Vern Corporation has heard about a
method of measuring cost functions called the high-low method and has decided to use it in
this situation.

Cost Hours
---- -----
$20,000 7,000
12,200 4,000
17,000 5,200
15,640 4,900
18,200 6,000
22,080 7,800
21,200 7,480
18,600 6,760

The cost function would be stated as


a. Y = $13,386 + $0.46X
b. Y = $10,680 + $0.38X
c. Y = $ 5,056 + $2.16X
d. Y = $ 1,800 + $2.60X
Use the following to answer the next three questions
ABC Corporation’s accountant, Sally, has suggested the company try regression as a method to
estimate the cost function. She uses the past data to obtain the following output from a simple
regression analysis:

Constant $ 271,819.66 Standard error of Y estimate 2,771.28


R-squared 0.989 Degrees of Freedom 4
X Coefficient 6.171 Standard error of Coefficient 0.320

7. From this regression, the estimated cost function is:


a. Y = 6.171 + 271,819.66 X
b. Y = 6.171 + 0.320 X
c. Y = 271,819.66 + 6.171 X
d. Y = 0.320 + 271,819.66 X

8. What is the goodness of fit in this analysis:


a. 0.320
b. 6.171
c. 4
d. 0.989

9. What is the estimated cost if 8,000 units of cost driver are used?
a. $ 321,187.66
b. $ 325,188.33
c. $ 271,819.66
d. $ 49,368
Use the following to answer the next three questions
ABC Corporation’s accountant, Sally, has suggested the company try regression as a method to
estimate the cost function. She uses the past data to obtain the following output from a simple
regression analysis:

Constant $ 128,555 Standard error of Y estimate 2,771.28


R-squared 0.989 Degrees of Freedom 4
X Coefficient 8.175 Standard error of Coefficient 8.554
X-Coefficient T-Val 0.26
Y-Estimate T-Val 4.66

10. From this regression, the estimated cost function is:


a. Y = 128,555
b. Y = 128,555 + 8.175X
c. Y = 8.175X
d. Y = 8.175 + 128,555X

11. What is the goodness of fit in this analysis:


a. 0.320
b. 6.171
c. 4
d. 0.989

12. What is the estimated cost if 8,000 units of cost driver are used?
a. $ 128,555
b. $ 193,955
c. $ 65,400
d. $1,050,945.30
Answers:
1. A
2. C
3. C
4. E
5. C
6. D
7. C
8. D
9. A
10. A
11. D
12. A

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