ACCT 320 Strategic Management Ch 8

Gargus Co. budgeted cost is $10 per pound of material and $500,000 for 20,000 direct labor hours. Estimated manufacturing overhead for the year is as follows:

$731

The strategic role of cost estimation includes ______.

- application of the cost estimation model in planning and decision making - identification of key cost drivers - prediction of future costs

The statistical measures that can be used to evaluate the reliability of a regression analysis include ______.

- t-value - R-squared, or coefficient of determination - p-value

The two best ways to assess the accuracy of the cost estimate are ______.

-MAPE -regression analysis

A study of the data graph is important to ______.

-both high-low and regression analysis -spot non-linearity in the data or the presence of outlier(s)

Learning curves are helpful in ______.

-capital budgeting -management control -make-or-buy decisions

Steps in cost estimation include ______.

-collect consistent and accurate data -select and employ the estimation method -graph the data -define the cost object

Unit-level activities in an organization ______.

-generally use the same resource and activity consumption drivers -are volume-based

Limitations of learning curve analysis include ______.

-unreliability because changes in productivity may be due to factors unrelated to learning -the learning rate is assumed to be constant

The maximum learning rate is ______.

.5

A learning rate of ___________ is equivalent to no learning.

1

True or false: The cost object defined in cost estimation is impacted by the goal for such estimation.

True

In the estimation equation, Y = a + (b × X), a represents ______.

a fixed quantity

Colvin Company uses the high-low method to estimate plant costs based on labor hours. Data for plant cost and labor hours for the most recent 10 months follows. The management accountant notes that the plant cost for month one is very different from the other months, so he removes this month from further analysis before doing the calculation.

an outlier

A limitation of learning curve analysis is it ______.

applies only for repetitive tasks

The 67% confidence interval is measured by ______.

approximately +/- one standard error distance around the regression line

The choice of aggregation level for the dependent variable depends on ______.

available data cost/benefit considerations cost estimation objectives

The standard error of the estimate (SE) is most related to ______.

confidence interval

Cost estimation can ______.

confirm the usefulness of cost drivers selected help identify cost drivers

Cost estimation can be used to play either a discovery or collaborative role in the identification of

cost drivers

The causal factors used in the estimation of a cost are called

cost drivers

Cost estimation is particularly important for firms competing on the basis of ______.

cost leadership

The first step in cost estimation is ______.

define the cost object

In a regression analysis, the choice of aggregation level for the __________ __________depends on the objectives for the cost estimation, data availability and reliability, and cost/benefit considerations.

dependent variable

In regression analysis, the cost to be estimated is the ______.

dependent variable

The most important step in cost estimation is ______.

determine the cost drivers

Machine hours, labor hours, and miles driven are all examples of cost _________.

drivers

One way to handle data shifts is to use a(n) ____________ ____________ to indicate the periods before and after the shift.

dummy variable

In regression analysis, seasonality can be indicated by a(n) ______ _______.

dummy variables

In regression analysis, the presence or absence of a condition is represented by a(n) ______ ______.

dummy variables

Multicollinearity is a problem for a regression analysis because ______.

estimates for the coefficients for the independent variables are unreliable

The first step in the high-low method is to ______.

graph the data

To identify unusual patterns, it is important to ______.

graph the data

Cost estimation methods include the_______ - ________ method and _________ analysis.

high-low regression

The main objective of graphing the data is to ______.

identify unusual patterns

The main role of learning curve analysis when learning is present is to ______.

improve the reliability and precision of cost estimates that impact many management decisions

The second step in a regression analysis is to identify the , which are the cost drivers.

independent variable

The most accurate data is likely to be produced by ______.

internal sources monitored by management policies and procedures

When repetition of the same activity makes labor more productive, nonlinear cost behavior is influenced by __________.

learning

The common reference to start-up costs in corporate annual reports provide additional evidence of the practical importance of ______ _____.

learning curves

A systematic method for estimating costs when learning is present is called ______ ______ ______.

learning curves analysis

Regression analysis fits the data by ______.

minimizing the sum of the squares of the estimation error

A limitation of a volume-based costing system is the ______.

potential for products to be charged too much or too little overhead

A statistical method for obtaining the unique cost-estimating equation that best fits a set of data points is called

regression analysis

The time period selected for estimating cost ______.

should be the one that best satisfies the objective of accuracy

In the estimation equation, Y = a + (b × X) + e, Y represents ______.

the cost to be estimated

Algebra is used in ______ method(s) of cost estimation.

the high-low

In the learning model Y= a × Xb, b is ______.

the learning index

When a given variable tends to change predictably in the same (or opposite) direction of a given change in another variable ______ exists.

Correlation

Defining the cost object, determining cost drivers, and collecting consistent and accurate data are the first three steps of

Cost Estimation

True or false: Both the high-low method and regression analysis can be modified for nonlinearity.

False

True or false: Relevant cost drivers should always be immediately obvious.

False

True or false: When choosing a cost estimation method, regression analysis should always be chosen over high-low.

False

True or false: When performing a regression analysis, every unusual data point should be considered an outlier.

False

True or false: When the t-value is greater than 2, the p-value will be high.

False

Which of the following statements is incorrect?

Most overhead costs relate directly to final products or services.

Skender Company uses the high-low method to estimate plant costs based on labor hours. Data for plant cost and labor hours for the most recent four quarters follows. Assume Skender uses Y to represent plant cost and X to represent Labor Hours.

Plant Cost = $1,000 + $21.50 × Labor hours

Colvin Company uses the high-low method to estimate plant costs based on labor hours. Data for plant cost and labor hours for the most recent 10 months follows. The management accountant notes that the plant cost for month one is very different from the other months, so he removes this month from further analysis before doing the calculation.

Plant cost = $380 + $1.05 × Labor hours

Why is the relevant range important in high-low cost estimation?

The relevant range marks the range of the cost driver within which a cost estimate can be obtained.

Colvin Company uses the regression method to estimate plant costs based on labor hours. In developing cost estimation models, Colvin uses Y to represent plant costs and X to represent labor hours. The regression method provides the following equation: Plant cost = $350 + $1.00 × labor hours Total expected cost for 3,000 labor hours equals ______.

$3,350

Assume a company uses the regression method to estimate plant costs based on labor hours. Data for plant cost and labor hours for the most recent four quarters follows. The company uses Y to represent plant cost and X to represent Labor Hours. The regression line to fit this data is: Plant cost = $0 + $2.40 × labor hours (a = 0 and b = $2.40)

$4

Cost estimation is the ______.

-development of a well-defined relationship between a cost and a cost driver for the purpose of predicting the cost. -prediction of future costs based on past relationships among costs drivers, cost objects, and other data

The goal in choosing independent variables is to choose variables that ______.

-do not duplicate other variables -have predictive value -change when the dependent variable changes

Trend exists in virtually all financial data time series data due to ______.

-growth in the economy -inflation

The high-low method ______.

-is based on a unique cost line for the high and low points -estimates fixed and variable cost for a set of data

The use of learning curves is important in cost estimation because ______.

-new products have a period of low productivity -of productivity improvements in many industries -of business start-up costs

Data relationships may be non-linear due to ______.

-outliers in the data -trends or seasonality in the data -a shift in the data at a point in time

Cost estimation methods available to the management accountant include ______.

-regression analysis -high-low method

In a regression with high R-squared the ______.

-regression will have high reliability -data values in a graph will fall relatively near to the regression equation line -value of R-squared will be close to one

The degree to which changes in the dependent variable can be explained by changes in the independent variable(s) is ______.

R-squared

The mean absolute percentage error (MAPE) is used to ______.

assess the accuracy of the cost estimate

A regression based on data from a single time period and several cost objects in that time period is ______ regression.

cross-sectional

In the learning model Y= a × Xb, Y is ______.

cumulative average time per unit

The percentage by which average time (or total time) falls from previous levels as output doubles is called the ______.

learning rate

The percentage by which average time (or total time) falls from previous levels as output doubles is called the _________ _________.

learning rate

When comparing high-low to regression analysis, the high-low method is ______ costly to apply.

less accurate and less

Both R-squared and t-value measure the reliability of the regression. The difference between the two is the t-value ______.

measures reliability for each independent variable while R-squared measure reliability for the full regression

Unusual data points that strongly influence regression analysis are called

outliers

The risk that an independent variable has only a chance relationship to the dependent variable is measured by ______.

p-value

A regression analysis produces the following equation: Y = $15,843 + $2.02 × operating hours and statistical measures of R-squared = .461 t-value = 2.07 (p =.09) Standard error of the estimate = $221.71 This indicates that reliability is ______.

poor and precision is good

A time-series regression model is used to ______.

predict future costs

High-low predictions are only valid for activity that falls within the

relevant range

A price change index such as the consumer price index can be used to deal with non-linearity arising from ______.

seasonality trends

The difference between simple regression and multiple regression is ______.

simple regression uses a single independent variable while multiple regression uses two or more

A relatively precise regression will have a standard error of the estimate that is ______ variable.

small relative to the mean of the dependent

Non-linear relationships are most common for ______ cost drivers.

structural

In a multiple regression, a variable with a low ______ should be removed to simplify the model and lead to more accurate cost estimates.

t-value

The cost driver used to estimate the value of the amount to be predicted in regression analysis is the ______.

the independent variable

A regression with good precision is one in which ______.

the predictions of the regression model are accurate

If an outlier data point is not removed from a regression analysis, ______.

the resulting regression equation is not representative of most of the data

In the estimation equation, Y = a + (b x X), b represents ______.

the slope of the estimation equation

In the learning model Y= a × Xb, a is ______.

time required for the first unit

Skender Company uses the regression method to estimate plant costs based on labor hours. The result of the regression is: Plant cost = $0 + $2.40 x labor hours. The regression for Skender has an R-squared 0f .969, a standard error of the estimate of 4.472 (which is approximately 10% of the mean of the dependent variable), and a t-value of 7.937 (p=.01). This indicates that reliability is _____.

very good and precision is good

In the estimation equation, Y = a + (b × X) + e, a represents a fixed quantity which is the amount of Y when X equals

zero