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15) Regression analysis ________.
A) calculates the slope coefficient using only two observed values within the relevant range and their
respective costs
B) measures the average amount of change in the dependent variable associated with a unit change in one
or more independent variables
C) estimates the cost functions using the time-and-motion studies
D) measures the variability or dispersion in a set of data points
16) Which of the following statements shows a difference between simple regression and multiple
regression?
A) Simple regression uses more than one dependent and independent variables, whereas multiple
regression uses only one dependent and independent variable.
B) Simple regression uses only the independent variables, whereas multiple regression uses only
dependent variables.
C) Simple regression uses only one dependent and one independent variable, whereas multiple
regression uses one dependent and more than one independent variable.
D) Simple regression uses only one dependent variable and more than one independent variables,
whereas multiple regression uses more than one dependent variable and only one independent variable.
17) The slope of the line of regression is the ________.
A) rate at which the dependent variable varies
B) rate at which the independent variable varies
C) difference between the fixed cost and variable cost associated with the cost driver
D) difference between actual cost and estimated cost for each observation of the cost driver
Answer the following questions using the information below:
Uninder Company uses the high-low method to estimate the cost function. The information for 2015 is
provided below:
Machine-hours Labor Costs
Highest observation of cost driver 550 $22,000
Lowest observation of cost driver 250 $ 13,000
18) What is the slope coefficient?
A) $52.00
B) $43.75
C) $30.00
D) $40.00
19) What is the constant for the estimated cost equation?
A) $5,500
B) $13,000
C) $16,500
D) $22,000
20) What is the estimated cost function for the above data?
A) y = 13,000 + 43.75X
B) y = 5,500 + 30X
C) y = 22,000 + 40X
D) y = 16,500 + 52X
21) What is the estimated total cost when 400 machine-hours are used?
A) $20,800
B) $29,000
C) $16,000
Answer the following questions using the information below:
Syosis Company uses the high-low method to estimate its cost function. The information for 2015 is
provided below:
Machine-hours Costs
Highest observation of cost driver 2,500 $300,000
Lowest observation of cost driver 1,500 $ 220,000
22) What is the slope coefficient?
A) $120.00
B) $147.00
C) $80.00
D) $130.00
23) What is the constant for the estimated cost equation?
A) $220,000
B) $300,000
C) $100,000
D) $0
24) What is the estimated cost function for the above data?
A) y = 300,000 +120X
B) y = 220,000 +147X
C) y = 100,000 +80X
D) y = 130X
25) What is the estimated total cost when 1,300 machine-hours are used?
A) $411,100
B) $204,000
C) $456,000
D) $156,000
Answer the following questions using the information below:
For Divaxo Company, labor-hours are 30,000 and wages $130,000 at the high point of the relevant range,
and labor-hours are 18,000 and wages $85,000 at the low point of the relevant range.
26) What is the slope coefficient?
A) $4.45
B) $3.75
C) $4.33
D) $4.72
27) What is the constant?
A) $17,500
B) $45,000
C) $7,000
D) $4,375
28) What is the estimated total labor costs at Divaxo Company when 11,000 labor-hours are used?
A) $51,944
B) $58,750
C) $56,270
Answer the following questions using the information below:
The Frontive Company has assembled the following data pertaining to certain costs that cannot be easily
identified as either fixed or variable. Frontive Company 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
$24,700 5,000
26,000 5,500
34,000 7,500
45,370 10,300
38,000 9,500
29) What is the cost function?
A) y = $45,370 + $4.19X
B) y = $24,700 + $4.40X
C) y = $34,000 + $4.94X
D) y = $5,200 + $3.90X
30) What is the estimated total cost at an operating level of 9,000 hours?
A) $35,100
B) $40,300
C) $44,460
D) $39,644
Answer the following questions using the information below:
Presented below are the production data for the first six months of the year for the mixed costs incurred
by Vertise Company.
Month Cost Units
January $4,890 4,100
February 4,426 3,520
March 6,730 5,200
April 9,724 8,250
May 5,900 4,900
June 7,336 6,600
Vertise Company uses the high-low method to analyze mixed costs.
31) How would the cost function be stated?
A) y = $484 + $1.12X
B) y = $5,298 + $1.19X
C) y = $2,388 + $1.12
D) y = $7,850 + $1.18X
32) What is the estimated total cost at an operating level of 6,500 units?
A) $7,752.44
B) $7,764.00
C) $7,280.00
D) $7,661.33
Answer the following questions using the information below:
The Bovise Company has assembled the following data pertaining to certain costs that cannot be easily
identified as either fixed or variable. Bovise Company has heard about a method of measuring cost
functions called the high-low method and has decided to use it in this situation.
Month Cost Hours
January $40,000 3,600
February 38,500 3,000
March 36,280 3,300
April 38,000 3,500
May 69,850 5,850
June 45,000 4,250
33) How is the cost function stated?
A) y = $26,672 + $11.94X
B) y = $1,360 + $11.37
C) y = $31,350 + $12.83X
D) y = $5,500 + $11X
34) What is the estimated total cost at an operating level of 3,100 hours?
A) $71,133
B) $39,600
C) $36,607
D) $63,687
35) A homogeneous relationship exists when each activity whose costs are included in the dependent
variable has the same cost driver.
36) The first step in estimating a cost function using quantitative analysis is to plot the data.
37) In estimating a cost function using quantitative analysis, the dependent variable is the factor used to
predict the independent variable.
38) Cross-sectional data pertain to the same entity (organization, plant, activity, and so on)
over successive past periods.
39) Simple regression analysis estimates the relationship between the dependent variable
and one independent variable.
40) Two common forms of quantitative analysis methods of cost estimation are the high-low method and
regression analysis.
41) The high-low method relies on only two observations, the highest and lowest, to estimate a linear cost
function.
42) The dependent variable is a cost to be predicted and managed, whereas an independent variable or
cost driver is the factor used to predict the dependent variable.
43) The vertical difference, called the residual term, measures the distance between actual cost and
estimated cost for each observation of the cost driver.
44) The high-low method is more accurate than the regression method of estimating a cost function.
45) In using high-low method, the slope coefficient is calculated by dividing the difference between
highest and lowest observations of the cost driver by the difference between costs associated with highest
and lowest observations of the cost driver.
46) Simple regression analysis estimates the relationship between the dependent variable and one
independent variable.
47) The high-low method involves choosing the period of highest cost driver activity and the period of
lowest cost driver activity.
48) Multiple regression analysis uses only independent variables and not dependent variables.
49) In regression analysis, the term "goodness of fit" indicates the strength of the relationship between the
cost driver and the costs.
50) Multiple regression analysis estimates the relationship between the dependent variable and two or
more independent variables.
51) The managers of the production department have decided to use the production levels of 2015 and
2016 as examples of the highest and lowest years of operating levels. Data for those years are as follows:
Year Chemicals used Overhead Costs
2015 336,000 gallons $292,800
2016 288,000 gallons $254,400
Required:
What is the cost estimating equation for the department if gallons of chemicals are used as the cost
driver?
52) Prelia's Storage ran its freezer in February, a slow month, for 378 hours for a total cost of $61,230. In
July, a peak month, the freezer ran for 756 hours for a total cost of $87,690.
Required:
a. What is the cost estimating equation for the department if hours of freezer use are used as the cost
driver?
b. What is the estimated total cost at an operating level of 600 hours?
53) The Bover Company has provided the following information:
Units of Output 33,000 Units 46,200 Units
Direct materials $ 316,800 $ 443,520
Workers' wages 1,188,000 1,663,200
Supervisors' salaries 343,200 343,200
Equipment depreciation 166,320 166,320
Maintenance 89,760 121,440
Utilities 422,400 580,800
Total $2,526,480 $3,318,480
Using the high-low method and the information provided above,
a. identify the linear cost function equation and
b. estimate the total cost at 38,000 units of output.
54) As part of his job as cost analyst, Max Thompson collected the following information concerning the
operations of the Machining Department:
Observation Machine-hours Total Operating Costs
January 4,700 $43,000
February 5,060 45,395
March 4,180 42,535
April 4,500 43,600
May 4,250 42,890
Required:
a. Use the high-low method to determine the estimating cost function with machine-hours as the cost
driver.
b. If June's estimated machine-hours are 4,300, calculate the total estimated costs of the Machining
Department?
55) Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in
Olathe, Kansas. The automated system is in its first year of operation and management is still unsure of
the best way to estimate the overhead costs of operations for budgetary purposes. For the first six months
of operations, the following data were collected:
Machine-hours Kilowatt-hours Total Overhead Costs
January 4,560 5,424,000 $405,600
February 4,380 5,208,000 404,160
March 4,680 5,400,000 407,040
April 3,960 5,148,000 404,160
May 3,900 5,040,000 391,200
June 3,720 4,944,000 384,000
Required:
a. Use the high-low method to determine the estimating cost function with machine-hours as the cost
driver.
b. Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost
driver.
c. For July, the company ran the machines for 4,000 hours and used 4,550,000 kilowatt-hours of
power. The overhead costs totaled $365,000. Which cost driver was the best predictor for July?
56) Patrick Ross, the president of Corise's Wild Game Company, has asked for information about the cost
behavior of manufacturing overhead costs. Specifically, he wants to know how much overhead cost is
fixed and how much is variable. The following data are the only records available:
Month Machine-hours Overhead Costs
February 1,870 $22,500
March 3,080 24,475
April 1,100 24,321
May 2,750 23,650
June 3,850 31,196
Required:
Using the high-low method, determine the overhead cost equation. Use machine-hours as your cost
driver.
57) List and briefly describe the six steps in estimating a cost function under quantitative analysis.
Objective 10.5
1) An inaccurate cost function with a slope coefficient that is estimated too low may most likely result in
________.
A) predicting total costs that are too high
B) initiating cost cutting measures when they are unnecessary
C) evaluating a weak manager as having strong performance
D) promoting a product that is actually more profitable than budgeted
2) An inaccurate cost function with a constant that is estimated too high may most likely result in
________.
A) evaluating a weak manager as providing strong performance
B) promoting a product that is actually less profitable than budgeted
C) predicting total costs that are too low
D) replicating processes that are truly cost saving
3) Which of the following is true if the constant in the cost function is low compared to the last year?
A) total variable costs have decreased
B) production has increased
C) the sales commission percentage has decreased
D) total fixed cost have decreased
4) Which of the following is true if a slope coefficient in a cost function is decreased from the last year?
A) fixed cost per unit has decreased
B) variable cost per unit has decreased
C) production has decreased
D) contribution margin has decreased
5) If machine maintenance is scheduled at a time when production is at a low level, then ________.
A) low production is the cost driver of high repair costs
B) an understanding of operations is needed to determine an appropriate cost driver
C) low production should be avoided since it is the cause of machine maintenance
D) machine maintenance cannot be accurately predicted
6) Goodness-of-fit measures how well the predicted values in a cost estimating equation ________.
A) match the cost driver
B) determine the level of activity
C) match the actual cost observations
D) rely on the independent variable
7) A steeply sloped regression line indicates ________.
A) a strong relationship between the cost driver and costs
B) a greater proportion of fixed costs than variable costs
C) an increase in number of units produced during the period
D) a strong relationship between fixed cost and variable cost
8) The smaller the residual terms, the ________.
A) better is the fit between the actual cost observations and estimated costs
B) weaker the relationship between the cost driver and costs
C) more the number of units produced during the period
D) stronger the relationship between fixed cost and variable cost
9) Which of the following statements is true of activity-based costing?
A) There is a clear cause-and-effect relationship between costs and the cost driver in the long run.
B) There is no variety of cost drivers and cost pools.
C) The system focuses on activities in together and not on individual activities.
D) A single cost driver should be identified for all the activities.
10) Which of the following statements is true of choosing cost drivers under activity-based costing?
A) All the cost drivers should be unit-level cost drivers.
B) There should be a clear cause-and-effect relationship between cost drivers and cost pools.
C) Cost drivers are independent variables.
D) A single cost driver should be identified for all the activities.
11) Machine-hours is a more economically plausible cost driver of machine maintenance than number of
direct manufacturing labor-hours.
12) The larger the vertical difference between actual costs and predicted costs the better the goodness of
fit.
13) The major advantages of quantitative methods are that they are objective, so managers can use them
to evaluate different cost drivers.
14) A flat or slightly sloped regression line indicates a strong relationship between the cost driver and
costs.
15) To implement ABC systems, managers must identify a cost driver for each activity.
16) Activity-based costing systems use the quantitative analysis method exclusively for cost estimation
because of its accuracy.
17) The conference method and the account analysis method use subjective assessments to choose a cost
driver and to estimate the fixed and variable components of the cost function.
18) What are the three criteria a company should use to evaluate and choose a cost driver? Briefly explain
each of the three criteria.
