47. A company allocates its variable factory overhead based on direct labor hours. During the
past three months, the actual direct labor hours and the total factory overhead allocated were as
follows:
Jan. Feb. Mar.
Direct labor hours 1,000 3,000 5,000
Total overhead
Allocated $80,000 $140,000 $200,000
Based upon this information, monthly fixed factory overhead was:
48. Simple regression analysis involves the use of:
Dependent Variables Independent Variables
A) One None
B) One One
C) One Two
D) None Two
49. Multiple regression analysis:
50. A company using regression analysis to correlate income to a variety of sales indicators
found that the relationship between the number of sales managers in a territory and net income
for the territory had a correlation coefficient of -1. Which is the best description of this situation?
51. For a simple regression analysis model that is used to allocate factory overhead, an
internal auditor finds that the intersection of the line of best fit for the overhead allocation with
the y-axis is $5,000. The slope of the line is .20. The independent variable, factory wages,
amounts to $900,000 for the month. What is the estimated amount of factory overhead to be
allocated for the month?
52. A retailer, in business for over 50 years, has developed the following regression model
from the past 60 months of operating data:
Monthly sales dollars = $50,000 + $4.70A + $30B – $1,000X
Where:
A = number of customers
B = advertising dollars per month
X = 1 if a winter month
X = 0 if other months
An appropriate interpretation of this model is that:
53. A manager uses regression to express sales as a function of advertising expenditures
(X1), and per capita income (X2) in your sales area. The following multiple linear regression
equation is developed:
Y = 10 + .51X1 + .45X2
The coefficient of determination is .96
This coefficient of determination explains that:
54. A manager uses regression to express sales as a function of advertising expenditures
(X1), and per capita income (X2) in your sales area. The following multiple linear regression
equation is developed:
Y = 10 + .51X1 + .45X2
The coefficient of determination is .96
Determine which of the following conclusions is valid regarding the coefficient of determination:
55. 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 relationship is:
56. 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?
57. 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 variable Y in the equation is an estimate of:
58. 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 $2 in the equation is an estimate of:
59. 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:
60. As a preliminary step in the selection of variables to use in a statistical-forecasting
model, the management accountant has calculated the coefficient of correlation between the
firm’s sales and three economic indexes. The results were as follows:
Index Coefficient of Correlation
A .105
B -.009
C -.854
Which of the following statements indicates the best course of action for the auditor to take in
the development of a forecasting model?
61. 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:
62. If the coefficient of correlation between two variables is nearly zero, how might a graph of
these variables appear?
63. Which of the following is required for multiple regression?
64. The p-value measures:
65. Which of these job characteristics would result in the learning curve having less of an
effect?
66. Sterling Glass Company uses the high-low method to analyze mixed costs. The following
information relates to the production data for the first six months of the year.
Month Cost Hours
January $4,515 300
February $4,825 400
March $5,540 550
April $4,485 200
May $5,685 800
June $5,230 500
How should the cost function be properly stated?
67. Sterling Glass Company uses the high-low method to analyze mixed costs. The following
information relates to the production data for the first six months of the year.
Month Cost Hours
January $4,515 300
February $4,825 400
March $5,540 550
April $4,485 200
May $5,685 800
June $5,230 500
What is the estimated total cost at an operating level of 900 hours?
68. Sterling Glass Company uses the high-low method to analyze mixed costs. The following
information relates to the production data for the first six months of the year.
Month Cost Hours
January $4,515 300
February $4,825 400
March $5,540 550
April $4,485 200
May $5,685 800
June $5,230 500
What is the estimated total cost at an operating level of 150 hours?
69. Pearson Electric Company uses the high-low method to analyze mixed costs. The
following information relates to the production data for the first six months of the year.
Month Cost(Y) Hours(H)
January $7,300 260
February $9,125 730
March $7,540 410
April $7,485 330
May $9,460 980
June $9,030 705
How should the cost function be properly stated using the high-low method?
70. Pearson Electric Company uses the high-low method to analyze mixed costs. The
following information relates to the production data for the first six months of the year.
Month Cost(Y) Hours(H)
January $7,300 260
February $9,125 730
March $7,540 410
April $7,485 330
May $9,460 980
June $9,030 705
What is the estimated total cost at an operating level of 1,180 hours, using the high-low method?
71. Georgia Meadows Company uses the high-low method to analyze production costs. The
following information relates to the production data for the first six months of the year.
Month Cost(Y) Hours(H)
January $8,542 6,530
February $7,750 5,950
March $9,700 7,500
April $7,435 5,700
May $7,200 5,500
June $9,263 6,750
How should the cost function be properly stated using the high-low method?