COST EXAM 3

Comparing the performance of a full decision tree to a pruned one could be done via all of the following approaches EXCEPT:

using the present value of likely results

The net present value method focuses on ____.

cash flows and required rate of return

When deciding to lease a new cutting machine or continue using the old machine, the irrelevant cost is

$50,000, cost of the old machine

Zephram Corporation has a plant capacity of 200,000 units per month. Unit costs at capacity are: Direct materials $6 Direct labor 5 Variable overhead 4 Fixed overhead 2 Marketing—fixed 6 Marketing/distribution—variable 4.60 Current monthly sales are 190,000 units at $30.00 each. Q, Inc., has contacted Zephram Corporation about purchasing 2,500 units at $24.00 each. Current sales would not be affected by the one-time-only special order. What is Zephram's change in operating profits if the one-time-only special order is accepted?

$11,000 increase (answer) 6 + 5 + 4 + 4.60 = 19.624 - 19.60 x 2,500

M & G TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2017 operations. Sales (1,500 televisions) $1,500,000 Cost of goods sold 555,000 Store manager's salary per year 120,000 Operating costs per year 210,000 Advertising and promotion per year 18,000. Commissions (2.8% of sales) 42,000 What were total fixed costs for 2017?

$348,000(answer) 120,000 + 210,000 + 18,000

The Connors Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Connors 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: 23,000 hrs: 5,000 Cost: 26,100 hrs: 6,450 Cost: 34,600 hrs: 7,650 Cost: 42,000 hrs: 10,000 Cost: 38,000 hrs: 9,350 What is the estimated total cost at an operating level of 9,000 hours?

$38,200 (answer) b = (42,000 − 23,000) / (10,000 − 5,000) = 3.80 42,000 = a + (3.80 × 10,000) a = 4,000 Y = 4,000 + 3.80X Y = 4,000 + (3.80 × 9,000) Y = $38,200

M & G TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2017 operations. Sales (1,200 televisions) $1,200,000 Cost of goods sold 540,000 Store manager's salary per year 108,000 Operating costs per year 216,000 Advertising and promotion per year 24,000 Commissions (3.0% of sales) 36,000 What was the variable cost per unit sold for 2017?

$480 (answer) (540,000 + 36,000) / 1,200

Which of the following methods utilizes discounted cash flows when analyzing potential capital expenditures? Methods: 1. Accrual accounting rate-of-return 2. Internal Rate of Return (IRR) 3. Payback Period 4. Net Present Value (NPV)

2 AND 4

A company is looking to purchase and replace a fixed asset for $245,000. It will sell the asset that will be replaced for $46,000 but will incur a $20,000 gain upon that sale. It must also commit $30,000 of working-capital to the investment. The firm's tax rate is 35%. What is the amount of the relevant initial investment?

236,000

A company is considering a new capital investment. The cost of the machine will be $179,000. The annual cost savings if the new machine is acquired will be $35,000. The machine will have a 10-year-life, at which time the terminal disposal value is expected to be zero. The company is assuming no tax consequences and has a 14% required rate of return. What is the payback period for the investment?

5.1 years

When evaluating a make-or-buy decision, which of the following needs to be considered?

alternative uses of the production capacity

At the Wild Cat Group Company, the cost of the library and information center has always been charged to the various departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of engineers within a department might be a better predictor of library and information center costs. Total library and information center costs are $213,000. Department A B C Number of employees 180 520 150 Number of new hires 10 60 35 If the number of employees is considered the cost driver, what amount of library and information center costs will be allocated to Department A? (Round any intermediary calculations to two decimal places and final answer to the nearest dollar.

Answer: $44,730 cost of library and information center will be allocated to Department A Explanation: Cost Center = No of employees Purticuler's Amount 1. Total library and information center costs $ 213,000 2. Total number of Employees (180+520+150). 850 3 No.of employees of Department A. 180 4 Share of Department A [3/2] .21 5 Costs will be allocated to Department A (1*4) $44,730

Difend Cleaners has been considering the purchase of an industrial dry-cleaning machine. The existing machine is operable for three more years and will have a zero disposal price. If the machine is disposed now, it may be sold for $170,000. The new machine will cost $360,000 and an additional cash investment in working capital of $170,000 will be required. The new machine will reduce the average amount of time required to wash clothing and will decrease labor costs. The investment is expected to net $130,000 in additional cash inflows during the first year of acquisition and $290,000 each additional year of use. The new machine has a three-year life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem. The working capital investment will not be recovered at the end of the asset's life. What is the net present value of the investment, assuming the required rate of return is 6%? Would the company want to purchase the new machine?

B. $264,290; yes (answer) Yr. 0 ($170,000 - $360,000 - $170,000) × 1.000 = $(-360,000)Yr. 1 $130,000 × 0.943 = 122,590Yr. 2 $290,000 × 0.890 = 258,100Yr. 3 $290,000 × 0.840 = 243,600 Net present value at 6% $264,290

Forge Company wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual cash inflows of $140,000. The required rate of return is 10% and the current machine is expected to last for seven years. Of the following choices, which is the dollar amount the company would be willing to spend for the machine, assuming its life is also seven years? Income taxes are not considered.

Calculate Amount of investment Investment in Machine = Amount*PVAF@10% = 140000*4.868 Investment in Machine = 681520 So answer is a) $68150

Accrual accounting rate of return is calculated by dividing _____.

an increase in expected average annual after-tax operating income by the net initial investment

Deployment of a data science model is:

applying the model for prediction using a new data

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $140 Direct labor 100 Manufacturing support 105 Marketing costs 55 Fixed costs: Manufacturing support 175 Marketing costs 65 Total costs 640 Markup (50%) 320 Targeted selling price $960 For Crandle Manufacturers Inc., what is the minimum acceptable price of this special order?

Direct material 140 Direct labor 100 Manufacturing support 105 Marketing cost 55 Total 400 Minimum acceptable price = $400 per unit (answer)

Which of the following is the proper order (sequence) of the steps in the data science framework? A= Visualize and communicate insights B= Deploy the model C= Prepare the data D= Obtain and explore the data E=Build a model F= Gain a business understanding of the problem G= Evaluate the model

F,D,C,E,G,A,B

A company manufactures cell phone chargers and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units. Projected. Current. Demand 72,000. 79,000 Selling Price. $8.50 $9.25 Incremental cost per unit $5.80 $5.80 If the price increase is implemented, operating profit is projected to _______.

Increase by $35,100 (answer) [72,000 × (9.25 - 5.80)] - [79,000 × (8.50 - 5.80)] =

Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows: Direct materials $54.00 Direct labor 35.00 Variable overhead 40.00 Fixed overhead 34.00 Total $163.00 Crayola Technologies Inc. has contacted Rubium with an offer to sell 6,000 of the subassemblies for $144.00 each. Rubium will eliminate $89,000 of fixed overhead if it accepts the proposal. Should Rubium make or buy the subassemblies? What is the difference between the two alternatives?

Make; savings = $1,000 (answer) Cost to buy: 6,000 × $144.00 = $864,000 Cost to make: [($54.00 + $35.00 + $40.00) × 6,000 + $89,000] = $863,000 Cost savings = $864,000 - $863,000 = $1,000; make the subassemblies

Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model Y Model Z Selling price $55 $69 $78 Direct materials 10 10 10 Direct labor ($15 per hour) 15 15 30 Variable support costs ($7 per machine-hour) 7 14 14 Fixed support costs 11 11 11 If there is a machine breakdown, which model is the most profitable to produce?

Model X (answer) Model X $55 - $10 - $15 - $7 = $23 / 1 = $23 highest Model Y $69 - $10 - $15 - $14 = $30 / 2 = $15 Model Z $78 - $10 - $30 - $14 = $24 / 2 = $12

Overfitting results in which of the following?

Noise Capture

Hypore Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $348,400. The annual cost savings if the new machine is acquired will be $80,000. The machine will have a 6-year life, at which time the terminal disposal value is expected to be zero. Hypore Park Department is assuming no tax consequences.

PV factor for internal rate of return = 348400/80000= 4.355 The PV factor 4.355 for 6 years is closest to 10% Internal rate of return = 10% (answer)

A solution to overfitting is:

Pruning

The _____ plots the false positive rate on the x-axis and the true positive rate on the y-axis

Receiver-Operating-Characteristic (ROC) Curve

In constructing a decision tree, which of the following best describes splits?

Splits (branches) are made which result in most homogeneous sub-nodes

A decision tree would most likely be utilized during which of the following steps?

Step 4 Building the Model

Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant

The only relevant item are the costs as they differ between alternatives

Which of the following can be said about the ROC curve?

The more accurate the predictions of a model are, the closer the ROC curve will go up along the y-axis on and then move horizontally across the top of the chart

Which of the following best describes data science?

The use of data analytics to draw conclusions from data

Which of the following is the first step on the data science framework?

Understand the problem

A company employs 8 individuals. They are all paid $16.50 per hour. How would total costs of personnel be classified?

Variable cost

The conference method estimates cost functions_____.

based on analysis and opinions gathered from various departments.

The account analysis method estimates cost functions _______.

by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis.

Cross-validation is the process of:

comparing predictions of different models on a new set of data for which the actual outcomes are already known.

When using the high-low method, the two observations used are the high and low observations of the _____.

cost driver

Sunk costs are

costs that are unavoidable and cannot be changed no matter what action is taken

To choose among models and to decide where to prune, data scientist ____ the model to assess the predictive performance of the mode

cross-validate

Which of the following techniques compares the performance of a full decision tree to its pruned version by utilizing probabilities?

cross-validation using maximum likelihood value

Relevant costs are

expected future costs

A decision model involves a(n) ___.

formal method of making a choice that often involves both quantitative and qualitative analyses

With a constraining resource, managers should choose the product with the ________.

highest contribution margin per unit of the constraining resource

Which of the following is the first stage to the capital budgeting process?

identify potential capital investments that agree with the organization's strategy

Lapofe Company has three products, A, B, and C. The following information is available: Product A Product B Product C Sales 70,000 €97,000 €23,000 € Variable costs 37,000 €51,000 €15,000 €Contribution margin 33,000 €46,000 €8,000 €Fixed costs: Avoidable 10,000 €20,000 €6,000 € Unavoidable 7,000 €12,000 €5,400 € Operating income 16,000 €14,000 €-3,400 € Lapofe Company is thinking of dropping Product C because it is reporting a loss. Assuming Lapofe drops Product C and does NOT replace it, operating income will ________.

increase by 3,400 (answer) because if the company didn't drops the product c there operating income will be 26600(16000+ 14000-3400) if the company drop the product and does not replace it there operating income will be 30000 which means they can increase their operating income by 3400

The capital budgeting method that calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of expected cash outflows is the _____.

internal rate of return method

In evaluating different alternatives, it is useful to concentrate on _____.

relevant costs

Net present value is calculated using which of the following?

required rate of return as a discount rate

A "what-if" technique that examines how a result will change if the original predicted data are NOT achieved or if an underlying assumption changes is called _____.

sensitivity analysis

A confusion matrix is a:

table that allows visualization of the performance of an algorithm

Opportunity costs is defines as ___.

the contribution to operating income that is forgone by not using a limited resource in its next-best alternative use

Which of the following is a learning-curve model?

the cumulative average-time learning model and the incremental unit-time learning model

Which of the following methods is described as the method that measures the time it will take to recoup, in the form of future cash inflows, the total dollars invested in a project?

the payback method

If the net present value for a project is positive, which of the following is true?

the project should be accepted because its expected rate of return is greater than the cost of capital

Which cost estimation method uses a formal statistical method such as regression analysis to develop cost functions based on past data?

the quantitative analysis method

Presented below are the production data for the first six months of the year for the mixed costs incurred by Venus Company. January cost: 5,260 units: 4,100 February cost: 5,000 units 4,000 March cost: 6,810 units: 5,520 April cost:9,900 units:9,000 May costs: 5,900 units: 4,960 June costs: 7,390 units: 6,510 Venus Company uses the high-low method to analyze mixed costs. How would the cost function be stated?

y = 1,080 + .98X (answer) b = (9,900 − 5,000) / (9,000 − 4,000) = 0.98 9,900 = a + 0.98 × 9,000 a = 1,080 Y = 1,080 + 0.98X

For February, the cost components of a picture frame include $0.40 for the glass, $0.67 for the wooden frame, and $0.83 for assembly. The assembly desk and tools cost $570. Two hundred fifty frames are expected to be produced in the coming year. What cost function best represents these costs?

y = 570 + 1.90X

A company employs 20 individuals. Eighteen employees are paid $18 per hour and the rest are salaries employees paid $3,000 a month. Which of the following is the total cost function of personnel?

y = a + bX