Chapter 5 SmartBook

In a month where the company expects to use 300 machine-hours, what are total expected costs using the account analysis method?

$10,500 Reason: $6,000 + ($15 × 300) = $10,500

Given the following information, calculate total estimated cost using the account analysis method. fixed costs per month $3,000 Variable cost per hour $10 Machine hours 200

$5,000

When using the high-low method, the equation that represents the slope of the total cost line (variable cost per unit) is ______.

(Cost at highest activity level - Cost at lowest activity level) ÷ (Highest activity level - Lowest activity level)

Select all that apply. Which of the following are true of regression analysis output?

The intercept term in a regression analysis must be interpreted with caution & The intercept at zero activity is outside of the relevant range of observations.

The cost estimation method that calls for a review of each account used to record costs is called the ______ ______.

account analysis

Select all that apply. Which of the following statements are true?

account analysis is often based on last periods costs, engineering estimates often omit inefficiencies such as downtime, & statistical cost estimation can deal with both random and unusual events

When the correlation coefficient is squared and adjusted for the number of independent variables used to make the estimate, it is called ______.

adjusted R^2

Select all that apply. The learning phenomenon ______.

affects the cost of most professional activities & causes a linear cost estimate to overstate the variable cost per unit

Select all that apply. Some of the more common problems with using regression estimates include ______.

attempting to fit a linear equation to nonlinear data & including outliers

Regression results ______.

can be used for cost estimation or to identify cost drivers

When predicting future costs, ______.

care should be taken when using historical data

The proximity of the data points to the regression line is called the ______.

correlation coefficient

TC = F + VX is called the ______ equation.

cost

Select all that apply. The most common assumptions made in cost estimation analysis are that ______.

cost behavior patterns are linear within the relevant range & cost behavior depends on just one cost driver

When managers make decisions, which of the following do they need to compare among alternative actions?

costs and benefits

Select all that apply. Which of the following are advantages of using the engineering estimates method?

details each step of the operation & does not require prior data

Select all that apply. Collecting appropriate data is complicated by ______.

discretionary costs, allocated costs, & mismatched time periods

Which of the following allows companies to identify where "slack" exists in it operations?

engineering method

Costs that do not change with activity level are ______ costs.

fixed

The intercept term of the output of a regression program is an estimate of ______ costs.

fixed

The learning phenomenon can affect costs used in all of the following except ______.

hiring decisions

Analysts must be careful when predicting future costs from ______ data.

historical

Select all that apply. Some of the more common problems with using regression estimates include ______.

including predictors with spurious relations to the dependent variable & using data that do not fit regression analysis assumptions

The adjusted R^2 recognizes that as the number of independent variables increases, the unadjusted R^2 ______.

increases

An important assumption that is often not satisfied in estimating costs is that the errors in estimating the cost are ______.

independent of the cost drivers

In regression estimates, the X term, or predictor, is called the

independent variable

Select all that apply. When using the general methods to estimate cost behavior, ______.

it is a good idea to use multiple methods so results can be compared & results are likely to differ from method to method

Which of the following is not true of regression analysis?

it is costly to perform

Select all that apply. Users of regression analysis should ______.

know the characteristics of the data being used, specify the model, & examine a plot of the data

A systematic relationship between the amount of experience in performing a task and the time required to perform it is referred to as the ______.

learning phenomenon

Manufacturing companies like Boeing establishing lower production costs for consecutive units produced is an example of ______.

learning phenomenon

Select all that apply. Activities measured by volume can use cost drivers that include ______.

machine-hours & units of output

Select all that apply. Which of the following are true regarding making decisions?

managers need to compare costs and benefits among alternative actions when making decisions & cost estimates are an important element in helping managers make decisions that add value

Account analysis relies heavily on personal judgement which ______.

may be an advantage or disadvantage

Select all that apply. Collecting appropriate data is complicated by ______.

missing data, inflation, & outliers

Account analysis does not include ______.

modeling and analyzing variables

The effect of attempting to fit a linear model to nonlinear data is likely to occur when a firm is operating ______.

near its capacity limits

The most commonly used regression technique is ______.

ordinary least squares

An observation that lies a significant distance away from the regression line and can have an overwhelming effect on the regression estimates is a(n) ______.

outlier

When the regression line shows an observation that lies a significant distance away from the line, this observation is called a(n) ______.

outlier

An important assumption that is often not satisfied in estimating costs is that the ______.

process for which costs are being estimated remains constant over time

The statistical technique designed to generate a line that best fits a set of data points is called ______.

regression

The closer R is to 1.0, the closer the data points are to the ______.

regression line

An activity level within which a given total fixed cost will be unchanged is called the ______ ______.

relevant range

The activity levels in which total fixed costs and per unit variable costs do not change is known as the ______.

relevant range

Select all that apply. Account analysis ______.

relies heavily on personal judgement & is a useful way to estimate costs

Select all that apply. Which of the following are true of continuous improvement efforts' impact on regression analysis?

restricting data to a short period will assume the process remained the same, but result in less reliable estimates & using longer periods risks using estimates that might not be meaningful

A visual representation of the fixed-variable relation of costs and activities is called a ______.

scattergraph

When beginning a statistical analysis of costs and activities, it is helpful to plot the costs against the activities using a(n) ______.

scattergraph

Estimation of regression to explain direct materials cost by using direct labor costs as the independent variable is an example of a(n) ______.

spurious relation

Including many variables in a regression in order to let the program "find" relationships among the variables can lead to ______.

spurious relations

Select all that apply. Which of the following methods are used to estimate cost behavior?

statistical analysis, engineering estimates, & account analysis

Select all that apply. When a firm is operating near its capacity limits ______.

the effect of attempting to fit a linear model to nonlinear data is likely to occur & costs increase more rapidly than activity

When using ordinary least squares regression, ______.

the inclusion of outliers can significantly affect the results

Select all that apply. The most important step in obtaining regression estimates for cost estimation is to establish the existence of a logical relationship between ______.

the independent and dependent variables & activities and cost to be estimated

Continuous improvement violates which regression analysis assumption?

the process for which costs are being estimated remains constant over time

The value of the estimated coefficient b divided by its estimated standard error SEb is the computation of ______.

the t-statistic

Select all that apply. Which of the following are true of regression results?

they can be used to test whether a particular factor is related to cost & they can be used to test for cost drivers

A common rule of thumb for scattergraphs is to use ______ year(s) of monthly data if the physical processes have not changed significantly within that time.

three

The number of observations to include in a scattergraph depend on all the following except ______.

tolerance for error

The intercept of the line on a scattergraph represents an estimate of the ______.

total fixed costs

Select all that apply. Users of regression analysis should ______.

understand the method and its limitations & know the characteristics of the data being used

Select all that apply. Statistical cost estimation ______.

uses several periods or locations as the basis for estimating cost relations & deals with both random and unusual events

The slope of the line on a scattergraph represents the estimated ______.

variable costs per unit

As a general rule, a t-statistic greater than ______ is considered significant.

2.0

The cost equation is TC = ______.

F + VX

Select all that apply. Which of the following are true when choosing an estimation method?

The benefits of using a sophisticated or simpler model need to be considered, Each method has advantages and disadvantages, & Assumptions should be considered on a case-by-case basis.

Select all that apply. When using the high-low method, the equation used to determine total fixed costs is ______.

Total cost at lowest activity level - (Variable cost × Lowest activity level) Total cost at the highest level - (Variable cost × Highest activity level)