cost acct test bank chapter 10(4)

26) The cost of the personnel department at the Miller Company has always been charged to the production departments based upon number of employees. Recently, opinions gathered from the

department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned. Total personnel department costs are $120,000. Department Department Department Cost Driver A B C Number of employees 300 250 50 The number of new hires 15 25 10

Required:

Using the above data, prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used is a. number of employees. b. the number of new hires.

c. Which cost estimation method is being used by Miller Company? Answer: Department Department Department Cost Driver A B C a. Number of employees 300/600 250/600 50/600 $60,000 $50,000 $10,000 b. The number of new hires 15/50 25/50 10/50 $36,000 $60,000 $24,000 c. Miller Company is using the conference method for cost estimation. Diff: 2

Terms: conference method, cost estimation Objective: 3

AACSB: Communication

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27) Munir Hassan, controller, gathered data on overhead costs and direct labor-hours over the past 12 months. List and discuss the different approaches Munir can use to estimate a cost function for overhead costs using direct labor-hours as the cost driver.

Answer: The four approaches to cost estimation are: 1. industrial engineering method 2. conference method 3. account analysis method 4. quantitative analysis of current or past cost relationships

The industrial engineering method, also called the work-measurement method, estimates cost functions by analyzing the relationship between inputs and outputs in physical terms.

The conference method estimates cost functions on the basis of analysis and opinions about costs and their drivers gathered from various departments of an organization (purchasing, process engineering, manufacturing, employee relations, etc.).

The account analysis method estimates cost functions by classifying cost accounts in the ledger as variable, fixed, or mixed with respect to the identified cost driver.

Quantitative analysis of cost relationships are formal methods, such as the high-low method or regression, to fit linear cost functions to past data observations. Diff: 2

Terms: cost estimation, industrial engineering/conference/account analysis method Objective: 3

AACSB: Reflective thinking

Objective 10.4

1) The cost to be predicted is referred to as the: A) independent variable B) dependent variable C) cost driver D) regression Answer: B Diff: 2

Terms: dependent variable, cost function Objective: 4

AACSB: Reflective thinking

2) The independent variable:

A) is also referred to as the cost driver

B) may also be called the cost-allocation base if referring to an indirect cost

C) should have an economically plausible relationship with the dependent variable D) All of these answers are correct. Answer: D Diff: 2

Terms: independent variable, cost function Objective: 4

AACSB: Reflective thinking

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3) How many separate cost pools should be formed given the following information: Cost Cost driver Postage costs # of brochures mailed Printing and paper costs # of brochures mailed Quality control costs # of inspections Customer service costs # of customers served

A) 1 cost pool B) 2 cost pools C) 3 cost pools D) 4 cost pools Answer: C Diff: 2

Terms: cost function, cost estimation Objective: 4

AACSB: Analytical skills

4) Place the following steps in order for estimating a cost function using quantitative analysis: A = Plot the data B = Estimate the cost function C = Choose the dependent variable D = Identify the cost driver

A) D C A B B) C D A B C) A D C B D) D C B A Answer: B Diff: 2

Terms: cost function Objective: 4

AACSB: Analytical skills

5) All individual cost items included in the dependent variable should have: A) the same cost driver

B) a cause-and-effect relationship with the independent variable

C) an economically plausible relationship with the independent variable D) All of these answers are correct. Answer: D Diff: 2

Terms: dependent variable Objective: 4

AACSB: Reflective thinking

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6) Collecting data on the dependent variable and the cost driver may include: A) interviews with managers

B) collecting data over a long period of time

C) collecting data from different entities over the same period of time D) All of these answers are correct. Answer: D Diff: 2

Terms: cost function, dependent variable Objective: 4

AACSB: Reflective thinking

7) A plot of data that results in bunched points with little slope generally indicates: A) a strong relationship B) a weak relationship C) a positive relationship D) a negative relationship Answer: B Diff: 3

Terms: cost estimation, cost function Objective: 4

AACSB: Reflective thinking

8) A plot of data that results in one extreme observation most likely indicates that: A) more than one cost pool should be used

B) an unusual event such as a plant shutdown occurred during that month C) the cost-allocation base has been incorrectly identified D) individual cost items do not have the same cost driver Answer: B Diff: 2

Terms: cost estimation, cost function Objective: 4

AACSB: Reflective thinking

9) Cross-sectional data analysis includes:

A) using a variety of time periods to measure the dependent variable B) using the highest and lowest observation

C) observing different entities during the same time period D) comparing information in different cost pools Answer: C Diff: 2

Terms: cost estimation Objective: 4

AACSB: Reflective thinking

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10) Time-series data analysis includes:

A) using a variety of time periods to measure the dependent variable B) using the highest and lowest observation

C) observing different entities during the same time period D) comparing information in different cost pools Answer: A Diff: 2

Terms: cost estimation Objective: 4

AACSB: Reflective thinking

11) When using the high-low method, the two observations used are the high and low observations of the: A) cost driver

B) dependent variables C) slope coefficient D) residual term Answer: A Diff: 2

Terms: high-low method Objective: 4

AACSB: Reflective thinking

12) When using the high-low method, the denominator of the equation that determines the slope is the: A) dependent variable B) independent variable

C) difference between the high and low observations of the cost driver

D) difference between the high and low observations of the dependent variables Answer: C Diff: 2

Terms: high-low method Objective: 4

AACSB: Reflective thinking

13) The high-low method:

A) easily handles estimating the relationship between the dependent variable and two or more independent variables

B) is more accurate than the regression method

C) calculates the slope coefficient using only two observed values within the relevant range D) uses the residual term to measure goodness of fit Answer: C Diff: 3

Terms: high-low method Objective: 4

AACSB: Reflective thinking

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