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##### devry acct349 week 3 homework ch 10 and 12

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Question;Chapter 10;Review Questions and Exercises;Fill;in the blank(s) to complete each statement.;1.;It is often assumed that a cost function is within the relevant range of a single;activity.;2.;The __ in an estimated cost function is the component of total cost that does not;vary with changes in the level of an activity.;3.;The __ _______ in an estimated cost function is the amount by which total cost changes;when a one-unit change occurs in the level of an activity.;4.;The most important issue in estimating a cost function is to determine whether;or not a _relationship;exists between an activity and the cost in question.;5.;The _ method estimates cost functions by analyzing the relationship between;inputs and outputs in physical terms.;6.;A statistical method that measures the average amount of change in the;dependent variable associated with a unit change in one or more independent variables;is __ ___________.;7.;A _ _________ remains the same over various ranges of the level of an activity;but increases by discrete amounts as the level of an activity increases from;one range to the next.;8.;(Appendix) A statistical measure of goodness of fit is the;which is the percentage of variation in the dependent variable (the cost);explained by the independent variable (the cost driver).;9.;(Appendix) The vertical distance in a graph between actual cost and estimated;cost for each observation of the cost driver is called a _ ____________.;True-False;Indicate;whether each statement is true (T) or false (F).;1.;The main purpose for estimating cost functions is to improve the accuracy of cost;predictions.;2. In the regression equationy=a+bX, the constantais an estimate of;fixed costs.;3. To obtain reliable estimated cost functions using the account analysis method;the cost-classification decisions should be made by individuals thoroughly knowledgeable;about the operations.;4. Usually, data collection is the most difficult step in estimating a cost;function based on quantitative analysis.;5. If the high-low method is used, the constant in the cost function equation;is always computed after computing the slope coefficient.;6. The closer the predicted amounts ofyin;a cost function are to the actual cost amounts, the better the economic plausibility.;7. The main purpose of the learning curve is to assist managers in developing;techniques for increasing the speed and efficiency of production.;8. A higher learning-curve percentage indicates a faster pace of learning.;9. (Appendix) If thet-value of the slope coefficient is less than 2.00, the;independent variable is not a cost driver.;10. (Appendix) When simple regression is used, specification analysis tests the;assumption regarding the reliability of data collection procedures.;11. (Appendix) In simple regression, a scatter diagram is useful to check for;constant variance of residuals.;12.;(Appendix) Multicollinearity exists whenever residuals, considered;sequentially, have a systematic pattern.;Multiple Choice;A;1. (CPA) Jackson, Inc., is preparing a flexible budget for the coming year and;requires the cost of steam used in its plant to be divided into its fixed and;variable elements. The following data on the cost of steam used and direct;manufacturing labor-hours (DMLH) used are available for the last six months;Month;Cost;of Steam;DMLH;July;$;15,850;3,000;August;13,400;2,050;September;16,370;2,900;October;19,800;3,650;November;17,600;2,670;December;18,500;2,650;Total;$101,520;16,920;Assuming;Jackson uses the high-low method, the estimated variable cost of steam per DMLH;is;2. Using the information in question 1 and assuming Jackson uses the high-low;method, the estimated amount of the constant is;3. In a step cost function where the steps are narrow, the cost behavior;approaches the pattern of a;4. (CPA) Adams Corporation developed the following flexible budget for annual;indirect manufacturing labor cost;Totalcost = $4,800 +;$0.50 (machine-hours);The;operating budget for the current month is based on 20,000 machine hours. Indirect;manufacturing labor cost included in the monthly flexible budget is;A;5. (CPA) Quo Co. rented a building to Hava Fast Food. Each month Quo receives a;fixed rental amount plus a variable rental amount based on Hava?s revenues for;that month. As revenues increase so does the variable rental amount, but at a reduced;rate. Which of the following curves reflects the monthly rentals under the;agreement?;Quo?s Rental Revenue;6. (CMA) Ace Manufacturing Corporation found that the production of a certain product;is subject to an 80% learning curve. The product is produced in lots of;100;units and 8 labor-hours are required for the first lot. Assuming Ace uses the cumulative;average-time learning model, total time required to produce 400 units is;Cumulative Number of UnitsCumulative Average Hours per UnitCumulative Total Hours1008.0 / 100 =0.0800100 x 0.0800 =8.002000.0800 x 80% =0.0640200 x 0.0640 =12.804000.0640 x 80% =0.0512400 x 0.0512 =20.48;7. Using the information in question 6 and assuming Ace uses the cumulative;average- time learning model, the incremental time required to produce the second;lot of 100 units is;(Appendix) Serial correlation is measured by;Review Exercises;1.;Barnes Company estimated the cost function for its maintenance cost. The cost;function has a variable element and a step fixed element that increases by;$10,000 for each additional 20,000 units of output between 40,000 and 80,000;units of output. Total maintenance cost would be $130,000 at 40,000 units of output;and $180,000 at 60,000 units of output. Compute the variable cost per unit of;output in this cost function.;2.;Addison Construction Company has begun paving roads for the Illinois highway;system. Each paving project is similar. Recently, the company completed its first;paving project in 20,000 hours. Direct labor is paid $20 per hour. The company;needs to predict its direct labor cost for purposes of making a competitive bid;on a contract for three additional paving projects. Addison?s experience;indicates that a 90% learning curve is appropriate for these projects.;a.;Using the cumulative average-time learning model, compute the predicted direct;labor cost for the contract of three additional paving projects.;Cumulative Number of Projects;1;2;4;b.;Using the incremental unit-time learning model, compute the predicted direct;labor cost for the contract of three additional paving projects, assuming a 90%;learning curve.;3.;(Appendix) Steve Kovzan was given the task of developing a cost function for;predicting indirect manufacturing costs (manufacturing overhead) for the Kansas;City personal computer plant of Electronic Horizons. The plant is highly;automated. The following information has been collected;Indirect;Direct;Month;Manufacturing;Costs;Machine-;Hours;Manufacturing;Labor-Hours;(DMLH);January;$2,530;2,730;324;February;1,900;1,810;210;March;4,710;3,403;347;April;1,270;2,200;331;May;4,380;3,411;272;June;4,020;2,586;202;July;3,730;3,364;342;August;3,070;2,411;247;September;4,980;3,964;347;October;3,310;2,897;328;November;1,270;2,207;293;December;3,510;2,864;307;Kovzan;estimates two cost functions using regression analysis;Regression;Model A: Indirect manufacturing costs;= f(Machine-hours);Variable;Coefficient;Standard;Error;t-Value;Constant;?1,707.70;912.94;?1.87;Independent;variable;Machine-hours;1.75;0.32;5.47;r2=.75, Standard error of residuals = 657.44, Durbin-Watson;statistic = 2.59;Regression;Model B: Indirect manufacturing costs;= f(Direct manufacturing labor-hours);Variable;Coefficient;Standard Error;t-Value;Constant;1,914.10;2,264.60;0.85;Independent;variable;DMLH;4.43;7.55;0.59;r2=.03, Standard error of residuals = 1,300.77, Durbin-Watson;statistic = 2.45;Which;cost function should Kovzan use for predicting indirect manufacturing costs?;Present your answer;in;the following format, as used in EXHIBIT 10-18, text p.372. State your;conclusion in the space below;this table.;Criterion;Regression;Model A;(Machine-hours);Regression;Model B (direct manufacturing labor-hours);Chapter 12;Review Questions and Exercises;Completion Statements;1.;The estimated long-run cost per unit of a product or service that enables the;company to achieve the target operating income per unit when selling at the;target price is called the;2.;is a systematic evaluation of all aspects of the business functions in the;value chain, whose key objective is to reduce costs and achieve a quality level;that satisfies customers.;3.;Costs that have not yet been incurred but, based on that decisions that have;already been made, will be incurred in the future are called _ _____ costs.;4.;tracks and accumulates the business function costs across the entire value;chain from a product?s initial R&D to its final customer servicing and;support.;5.;The practice of charging different customers different prices for the same;product or service is called __ ______.;6.;The practice of charging a higher price for the same product or service when;demand for it approaches the physical limit of the capacity to produce that;product or service is called _ ____.;7.;A company engages in __ when it deliberately prices below its costs in an;effort to drive competitors out of the market and restrict supply, and then;raises prices rather than enlarge demand.;True-False;Indicate;whether each statement is true (T) or false (F).;1.;The three major influences on pricing decisions are customers, competitors, and;costs.;2. A company should accept a one-timeonly special order when the order?s total contribution;margin is positive.;3. Value engineering is usually;constrained by locked-in costs.;4. The target rate of return on investment for a product is the same as the;product?s markup as a percentage of its full unit cost.;5. The cost of preparing an owner?s manual and including it in each product;package is a value-added cost.;6. One reason managers use the full cost of products as the cost base in their;pricing decisions is to promote price stability.;7. Life-cycle costing highlights manufacturing costs more than the costs of;other business functions in the value chain.;8. When there is price discrimination, pricing is not linked closely to the;cost of the product.;9. Under the U.S. Robinson-Patman Act, a manufacturing company cannot price discriminate;between two customers if its intent is to lessen or prevent competition.;10. Setting prices above average variable costs is regarded as pricing that is;nonpredatory.;11. Collusive pricing occurs when a non- U.S. company sells a product in the;U.S. at a price below the market value in the country where it is produced, and;this lower price materially injures or threatens to materially injure an;industry in the U.S.;Multiple Choice;1. In regard to supply and demand, demand is affected by;b.;customers and competitors.;A;2. (CPA) Relay Corporation manufactures batons. Relay can manufacture 300,000 batons;a year at variable costs of $750,000 and fixed costs of $450,000. Fixed costs;will remain the same between 200,000 and 300,000 batons. Based on Relay?s;predictions, 240,000 batons will be sold at the regular price of $5.00 each. In;addition, a one-time only special order was received for 60,000 batons to be;sold at a 40% discount off the regular price. By what amount does operating;income increase or decrease as a result of accepting the special order?;a.;$30,000 increase;D;3. (CPA) Nile Co.?s cost allocation and product-costing procedures follow;activity- based costing principles. Activities related to each product have;been identified and classified as being either value adding or non-value-adding.;Which of the following activities, used in Nile?s production process, is non-value-adding?;d.;Materials storage activity;4. For a company manufacturing personal computers, a graph of locked-in costs and;incurred costs shows;5. (CPA) Purvis Company manufactures a product that has a variable cost of $50 per;unit. Fixed costs total $1,000,000 and are allocated on the basis of the number;of units produced. Selling price is computed by adding a 10% markup to full;cost of the product. How much should the selling price per unit be for 100,000;units?;6. (CPA) Diva Co. wants to establish a selling price that will yield a gross;margin of 40% on the revenues of a product whose cost is $12.00 per unit. The;selling price should be;7. (CPA) Briar Co. signed a government construction contract providing for a formula;price of actual cost plus 10% of cost. In addition, Briar was to receive one-half;of any savings resulting from the formula price being less than the target price;of $2,200,000. Briar?s actual costs incurred were $1,920,000. How much should Briar;receive from the contract?;Review Exercises;1.;Silverthorne Inc. is deciding on the price for a new product. The company uses;cost-plus pricing based on target return on investment. The following;information is available for the product;Invested capital;$25 million;Target rate of return on investment;20%;Full cost of the product (per unit) at;the output level;of 125,000 units;$200;Full cost of the product (per unit) at;the output level of;80,000 units;$250;a.;Compute the prospective selling price, assuming the predicted output level is;125,000 units.;b.;Compute markup as a percentage of full cost of the product, assuming the;predicted output level is 80,000 units.;2.;Appletree Inc. is analyzing the profitability of two of its accounting software;packages. Summary data on the packages over their two-year product life cycle;are as follows;Package;Selling;Price;Sales in;Units;Quick;Tax;$250;Year 1;4,000;Year 2;16,000;Fast;Audit;$200;Year 1;10,000;Year 2;6,000;The;life-cycle revenue and cost information is (in thousands);Quick Tax;Fast Audit;Year 1;Year 2;Year 1;Year 2;Revenues;$1,000;$4,000;$2,000;$1,200;Costs;R&D;1,400;0;480;0;Product design;370;30;160;32;Manufacturing;150;450;286;130;Marketing;280;720;480;416;Distribution;30;120;120;72;Customer service;100;650;440;776;Appletree;is particularly concerned with increases in R&D and product design costs;for many of its software packages in recent years. Consequently, major efforts;have been made to reduce these costs on theFast Audit package.;a.;Prepare a product life-cycle income statement for each software package.;b. Compare the two packages in terms of;their profitability and cost structure. State your conclusions;(dollars in thousands);Quick Tax;Fast Audit

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