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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?
2. Which of the following five steps (out of six) of cost estimation is out of order?
3. The identification of cost drivers is perhaps the most important step in developing the
cost estimate because:
4. Technology and complexity issues often lead management to simplify and to:
5. Data collected on the cost objects and cost drivers for cost estimation must be:
6. The objective of the fourth step in cost estimation, graphing the data, is intended to:
7. Selection and employment of the correct estimation method is:
8. Regression analysis is better than the high-low method of cost estimation because
regression analysis:
9. When there are two or more cost drivers, regression is termed:
10. The independent variable in regression analysis is:
11. High-low and regression cost estimation methods are alike in that they both:
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:
13. A variable used in regression analysis that represents the presence or absence of a
condition, e.g., seasonality, is called a(n):
14. An R-squared value that approaches one (1.0) would indicate:
15. Extending the length of a time period in cost estimation will result in:
16. The learning curve in cost estimation is a good example of:
17. Which one of the following cost estimation methods is the most accurate?
18. In least squares regression analysis, the cost to be estimated is the:
19. Which one the following is a variable that takes on values of 1, 2, 3, … for each period in
sequence?
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 Maintenance Expense Machine 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
Using the high-low method, unit variable cost is calculated to be:
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 Maintenance Expense Machine 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
Using the high-low method, total monthly fixed cost is calculated to be:
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 Total Overhead Machine Hours
Jan. $6,288 1,980
Feb. 6,460 2,090
Mar. 5,987 1,745
Apr. 5,559 1,560
May 6,032 1,865
June 6,341 2,012
Using the high-low method, unit variable overhead cost is calculated to be:
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 Total Overhead Machine Hours
Jan. $6,288 1,980
Feb. 6,460 2,090
Mar. 5,987 1,745
Apr. 5,559 1,560
May 6,032 1,865
June 6,341 2,012
Using the high-low method, total monthly fixed overhead cost is calculated to be:
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 Total Overhead Machine Hours
Jan. $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, unit variable overhead cost is calculated to be:
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 Total Overhead Machine Hours
Jan. $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:
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 Overhead Cost Machine Hours
January $3,185 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:
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 Overhead Cost Machine Hours
January $3,185 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:
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):
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?
