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Exam 8: Cost Estimation

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Question 31

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Based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X) . The following relationship was found: Y = $1,000 + $2X The equation was probably found through the use of which of the following mathematical techniques?

A) Linear programming.
B) Multiple regression analysis.
C) Simple regression analysis.
D) Excel tools.
E) Nonlinear regression.

F) B) and D)
G) B) and E)

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Question 32

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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 2019.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 = 0.19, t = 1.5, SE = 974). Required: (1) Determine the quarterly forecasts for 2019 using the high-low method and also 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?

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(1) High-low method
An examination of th...

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Question 33

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Which of the following is not one of the main issues regarding data collection which can significantly affect precision and reliability when using regression or any other cost estimation method?

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

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

Extending the length of a time period in cost estimation will result in:

The use of a relationship of total factory overhead to direct labor hours is said to be valid only within the relevant range, which means:

Data mining and business analytics software are increasingly used by large retailers and hotel chains, restaurants, and other businesses. In recent years, the trend is for smaller companies and manufacturers to begin to see the value of data mining, analyzing the data the company has about its customers and competitive environment to help the company make improved decisions about pricing, customer service strategies, new product development, and other competitive issues. Required: Explain how a growing, medium-sized manufacturer of furniture for hotels, businesses, and other commercial enterprises could use analytics to help it reach out to new customers.

Burmer 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. Data regarding the machine hours and maintenance costs for the last year and the results of the regression analysis are as follows:A staff assistant has run regression analyses on the data and obtained the following output using Excel: REGRESSION ANALYSIS Y (Dependent) Variable: Maintenance Cost X (Independent) Variable: Maintenance Hours A key statistic that indicates reliability of the regression is:

The high-low method:

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.

Which of these job characteristics would result in the learning curve having less of an effect?

The following costs were for Optimal View Inc., a contact lens manufacturer:At an output level of 425 lenses, per unit variable cost is calculated to be:

In least squares regression analysis, the cost to be estimated is the:

Which of the four types of cost drivers-activity-based, volume-based, structural and executional-are often best related to linear cost estimation methods?

Burmer 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. Data regarding the machine hours and maintenance costs for the last year and the results of the regression analysis are as follows:REGRESSION ANALYSIS Y (Dependent) Variable: Maintenance Cost X (Independent) Variable: Maintenance Hours The statistic that indicates precision of the regression is:

Train Express Co., which manufactures locomotive engines, is attempting to predict its maintenance costs more accurately.Maintenance costs are a mixed cost.Maintenance costs and machine hours for the first four months of the year are as follows: Required: Using the high-low method, calculate unit variable cost and monthly fixed costs.

Selection and employment of the correct estimation method is:

Quick Telephone Response (QTR) was started several years ago to provide an outsource telephone service for the growing number of small, specialty catalog mail-order companies that commenced operations in recent years.Since most of the calls are received between 10 a.m.and 2 p.m., QTR began offering a telephone answering service to attempt to fill the remainder of the day for its operators.However, as outsource competition has recently increased, QTR analyzed its operations and concluded that it should focus on its core business of providing service to its mail-order clients only.To bring operating costs into line, QTR concluded that it should shed some of its full-time operators and replace them with part-time operators in order to cover the peak mid-day calling period. Weldon Miller, director of the Telephone Response Operations Department, engaged a consultant to assist in analyzing the situation and determining the number of full-time and part-time employees that will be required to meet QTR's variable operating schedule.Based on a study of one month's activity they concluded that the number of daily orders received for their specialty clients averaged 3,450 with the mid-day period averaging 2,250 orders.They calculated that there would be a need to retain twenty five (25) full-time employees.They further developed two regression analyses.Regression 1 relates to the average of 3,450 orders per day and Regression 2 relates to the average of 2,250 peak mid-day orders.The data resulting from these analyses are presented below. Regression Equation: where: E = a + bN E = Employees N = Number of orders Required: (1) Refer to the regression data in the previous column for Quick Telephone Response (QTR). (a) Calculate the number of part-time employees that will be needed each day using the regression results relating to the average number of daily orders handled.Round your response to the nearest whole number. (b) Apply the regression results that relate to the average number of orders handled during the mid- day peak period.Calculate the number of part-time employees that will be needed daily.Round your response to the nearest whole number. (c) Of the two regression analyses used select the regression analysis which appears to be the better one and explain the reason for your conclusion. (2) Describe at least two ways that Weldon Miller could improve the regression predictions.(CMA adapted)

The learning curve in cost estimation is a good example of: