Regression Analysis

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CHAPTER 3: COST ANALYSI

mas_1g Black Ops 1 Activity Science - Seeing Through Action Plan Final Rubrics for Clean
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b 1. The principal advantage of the scatter-diagram method over the
the scatter-diagram method
a. includes costs outside the relevant range.
b. considers more than two points.
c. can be used with more types of costs than the high-low meth
d. gives a precise mathematical fit of the points to the line.
a 2. The major objective of preparing a scatter-diagram is to

a. derive an equation to predict future costs.
b. perform regression analysis on the results.
c. determine the relevant range.
d. find the high and low points to use for the high-low method
d 3. The cost estimation method that gives the most mathematically

a. the high-low method.
b. the scatter-diagram method.
c. the contribution margin method.
d. regression analysis.
c 4. Which cost is most likely to be mixed for a manufacturer?

a. Raw materials.
b. Direct labor.
c. Manufacturing overhead.
d. Insurance.
b 5. Which combination of object of cost and classification of cost

Object of Cost Classification of Cost
--------------- ----------------------
a. Materials used to make products Discretionary fixed cost
b. Advertising cost Discretionary fixed cost
c. Straight-line depreciation Variable cost
d. President's salary Avoidable fixed cost
c 6. A cost is variable if it varies with the

a. number of units manufactured.
b. number of units sold.
c. level of some activity.
d. selling price of the product.
d 7. A non-value-adding cost is
a. usually direct to a product.
b. the same as a discretionary cost.
c. unavoidable.
d. not essential to manufacturing a product.
a 8. Fixed costs that cannot be reduced within a short period of ti

a. committed.
b. variable.
c. avoidable.
d. unnecessary.
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b 9. Which cost is most likely to be committed?

a. Repairs and maintenance.
b. Sum-of-the-years'-digits depreciation on the factory buildi
f l h l l i
c. Fee for a consultant on the company's long-range planning.
d. Advertising.
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a 10. RST's average cost per unit is the same at all levels of volum
a. RST must have only variable costs.
b. RST must have only fixed costs.
c. RST must have some fixed costs and some variable costs.
d. RST's cost structure cannot be determined from this informa
b 11. A mixed cost

a. increases in steps as volume increases.
b. contains a fixed component and a variable component.
c. varies with more than one measure of volume.
d. cannot be accurately predicted.
b 12. A non-value-adding activity
a. cannot be a cost driver.
b. should be eliminated.
c. usually drives only variable costs.
d. cannot usually be observed by managers.
d 13. A cost-predicting equation determined through regression analy

a. always gives close predictions.
b. will not work any better than one obtained using the high-l
c. can be used only for costs that vary with sales or producti
d. could be severely affected by outliers.
b 14. Which of the following do JIT operations try to eliminate?

a. Discretionary fixed costs.
b. Non-value-adding costs.
c. Avoidable costs.
d. Direct costs.

d 15. ABC Company breaks even at $600,000 sales and earns $60,000 at
true?
a. Fixed costs are $40,000.
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b. Profit at sales of $800,000 would be $160,000.
c. The selling price per unit is $6.
d. Contribution margin is 60% of sales.

b 16. A seasonal business that sets selling prices at 20% above aver
a. be better off if it closed down during the off-season.
b. charge higher prices in the off-season than in the busy sea
c. always charge higher prices than its competitors.
d. make a consistent return on sales of 20%.

b 17. The components of manufacturing cost are
a. variable costs, fixed costs, and overhead costs.
b. materials, direct labor, and overhead.
c. purchases, wages, and manufacturing overhead.
d. wages and salaries, maintenance and repairs, utilities, and
b 18. Which statement is true for a manufacturer?

a. It cannot use the contribution-margin format of the income
b. Many costs vary with production activities, not with sales.
c. The concepts of fixed and variable costs do not apply.
d. Cost-volume-profit analysis is not appropriate.
d 19. Fixed costs that managers can change on short notice are
a. value-adding costs.
b. variable costs.
c. unavoidable costs.
d. discretionary costs.
c 20. A(n) __________ relationship is one that appears to exist even

a. Correlation.
b. Outlier.
c. Spurious.
d. Value-added.
c 21. Identifying cost drivers

a. is not necessary with regression analysis.
b. is the same as identifying cost pools.
c. is an important part of cost management.
d. is useful only with step-variable costs.
d 22. A cost pool is

a. all of the costs of a particular department.
b. all costs in a group such as variable costs or discretionar
c. all costs related to a product or product line.
d. all costs that have the same driver.
b 23. As volume increases,

a. total fixed costs remain constant and per-unit fixed costs
b. total fixed costs remain constant and per-unit fixed costs
c. total fixed costs remain constant and per-unit fixed costs
d. total fixed costs increase and per-unit fixed costs increas

d 24. Which cost is NOT subtracted from selling price to
calculate contribution margin per unit?
a. Variable manufacturing overhead.
b. Variable selling expenses.
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d. Fixed manufacturing overhead.

c 25. A committed fixed cost
b li i d
a. can never be eliminated.
b. can be eliminated in the short-term and in the long-term.

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c. can be eliminated in the long-term, but not in the short-te 
d. can be eliminated in the short-term, but not in the long-te

c 26. Avoidable costs are usually
a. committed.
b. common.
c. direct.
d. fixed.

a 27. Direct costs are
a. associated with a specific activity.
b. always variable.
c. usually committed.
d. usually discretionary.
c 28. Discretionary costs

a. are usually unavoidable.
b. are not necessary for successful operations.
c. can be either direct or indirect.
d. should be the first ones cut in a cost-reduction program.

a 29. Ogden Company had $300,000 overhead cost at 20,000 machine hou
Variable overhead cost per machine hour is
a. $ 4.00.
b. $12.80.
c. $15.00.
d. some other number.

b 30. Sacramento Company had $400,000 overhead cost at 50,000 machin
hours. Total fixed overhead is
a. $ 60,000
b. $100,000
c. $120,000.
11
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d. $320,000.

d 31. Which cost is LEAST likely to be discretionary?
a. Salaries of salespeople.
b. Advertising.
c. Building maintenance.
d. Insurance.

a 32. Which cost is LEAST likely to be direct to a particular produc
a. Salaries of salespeople who sell all of the company's produ
b. Advertising of the product.
c. License fees paid to the designer of the product.
d. Cost of materials used to make the product.

c 33. Which cost is most likely to be avoidable in deciding whether
in a factory?
a. Depreciation on the factory building.
b. Salaries of maintenance workers who service all assembly li
c. Power used to operate equipment on the assembly line.
d. Heat and light for the building.
c 34. DSP Company earned $100,000 on sales of $1,000,000. It earned

costs as a percentage of sales are
a. 30%.
b. 40%.
c. 70%.
d. 90%.

b 35. DSP Company earned $100,000 on sales of $1,000,000. It earned
fixed costs are
a. $0.
b. $200,000.
c. $420,000.
d. $900,000.
c 36. Predicting costs at activity levels that are outside the relev
a. association.
b. correlation.
c. extrapolation.
d. none of the above.

a 37. A non-value-adding cost
a. is driven by a non-value-adding activity.
b. is discretionary.
c. is direct to a product.
d. allows the company to charge a higher price for the product
b 38. Looking at the following scatter diagrams we can conclude that

$ $
| * * | **
| * * * | ** *
| * * * * | * *
| * * | * *
| |
| |
|__________________ |__________________
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Cost A Cost B
a. cost A will be easier to predict than cost B.

b ill b i di h
b. cost B will be easier to predict than cost A.
c. cost A is out-of-control.

1 of 6
d. cost B has no fixed component.
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b 39. MNO has a break-even point of 200,000 units and earns a $100,0
of the following is true?
b. Total contribution margin at 200,000 units is $400,000.
c. Profit at sales of 300,000 units is $120,000.
d. Selling price per unit is $2.
a 40. The closeness of the relationship between the cost and the act
a. correlation.
b. spurious.
c. regression analysis.
d. manufacturing overhead.
d 41. R-squared is a measure of

a. the spurious relationship between cost and activity.
b. the fixed cost component.
c. the variable cost per unit of activity.
d. how well the regression line accounts for the changes in
c 42. DJH has an average unit cost of $20 at 20,000 units and $13.75
per unit?
a. $5.00
b. $6.25
c. $7.50
d. An amount that cannot be determined without more informat
b 43. DJH has an average unit cost of $20 at 20,000 units and $13.75
cost?
a. $125,000
b. $250,000
c. $400,000
12
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a 44. GMH Company had $200,000 overhead cost at 25,000 machine hours
Variable overhead per machine hour is
a. $4.00.
b. $1.00.
c. $0.83.
d. some other number.
d 45. Elmwood Company had $300,000 overhead cost at 40,000 machine h

hours. Total fixed overhead is
a. $ 36,000
b. $ 40,000
c. $ 60,000.
d. $180,000.
b 46. Crookston Company breaks even at $300,000 sales and earns $40,
following is true?
b. Profit at sales of $500,000 would be $50,000.
c. The selling price per unit is $4.
d. Contribution margin is 10% of sales.

a 47. Glenwood has an average unit cost of $45 at 20,000 units and $
cost per unit?
a. $15
b. $20
c. $35
b 48. Glenwood has an average unit cost of $45 at 20,000 units and $
cost?
a. $400,000
b. $600,000
c. $900,000
b 49. Osceola Company earned $50,000 on sales of $400,000. It earned

margin as a percentage of sales is
a. 30%.
b. 40%.
c. 60%.
d. 70%.

c 50. Osceola Company earned $50,000 on sales of $400,000. It earned
costs are
a. $ 0.
b. $ 50,000.
c. $110,000.
d. $180,000.
True-False
F 1. The major variable cost in a manufacturing company is factory

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2. In interpreting regression results, the higher the correlation

be.

F 3. Discretionary costs are step-variable.

F 4. Discretionary fixed costs are not necessary to successful oper


T 5. High-low, scatter diagram, and regression analysis are methods
costs.
F 6. As volume increases, the per-unit amount of a mixed cost incre

T 7. In developing a cost-prediction equation using regression anal
highest correlation.
F 8. A company using activity-based costing need not do regression
F 9. An r-squared of .91 with a regression equation means that pred
T 10. A multiple regression equation uses more than one driver to pr
Problems
1. Carlson Company incurred $170,000 in overhead costs making 12,000

incurred $188,000 in overhead costs in April.

a. Compute the variable component of overhead cost.
b. Find the fixed factor of overhead cost.
SOLUTION:
a. $6 [($188,000 - $170,000)/(15,000 - 12,000)]
b. $98,000 [$170,000 - (12,000 x $6), or $188,000 - (15,000 x $6)]

2. The statistician of RST, Inc. has developed the following cost-pr
13
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12,000 to 30,000 machine hours.
Y = $236,837 + $3.7625X, r-squared = .81, standard error = $2
Y = total maintenance cost, X = machine hours
a. Find the predicted maintenance cost at 25,000 machine hours.
b. Will maintenance cost at zero machine hours be $236,837? yes
c. About 68% of the time, maintenance cost should be within what
SOLUTION:
a. $330,900 ($236,837 + $3.7625 x 25,000)
b. No, zero is outside the relevant range.
c. $24,363, the standard error
3. Genner Company earned $125,000 on sales of $750,000. It earned $
a. Find the variable costs as a percentage of sales.
b. Find the total fixed costs.
SOLUTION:
a. 60% {1 - [($225,000 - $125,000)/($1,000,000 - $750,000)]}
b. $175,000 [$1,000,000 x (1 - 60%) - $225,000]
4. Danner has an average unit cost of $22.50 at a volume of 400,000

cost is $20.50.
a. Compute the variable cost per unit.
b. Compute the total fixed cost.
SOLUTION:
a. $12.50 {[($20.50 x 500,000) - ($22.50 x 400,000)]/(500,000 - 40
b. $4,000,000 ($9,000,000 - $12.50 x 400,000)
5. Tri-County Company incurred $175,000 in overhead costs making 40,

incurred $147,000 in overhead costs in May.

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SOLUTION:
1 of 6
a. $1.75 [($175,000 - $147,000)/(40,000 - 24,000)]
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b. $105,000 [$147,000 - (24,000 x $1.75), or $175,000 - (40,000 x $
6. Bilbo Company incurred $374,000 in overhead costs making 11,000 u
incurred $325,000 in overhead costs in December.

SOLUTION:
a. $14 [($374,000 - $325,000)/(11,000 - 7,500)]

b. $220,000 [$325,000 - (7,500 x $14), or $374,000 - (11,000 x $14)
7. The statistician of Comstock, Inc. has developed the following pr

observations from 25,000 to 60,000 machine hours.
Y = $146,374 + $4.892X, r-squared = .86, standard error = $28
Y = total repair cost, X = machine hours
a. Find the predicted repair cost at 50,000 machine hours.
b. Will repair cost at zero machine hours be $146,374? yes no
c. About 68% of the time, repair cost should be within what amoun
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SOLUTION:
a. $390,974 ($146,374 + $4.892 x 50,000)
b. No, zero is outside the relevant range.
c. $28,638, the standard error
8. Scooter Company earned $150,000 on sales of $1,000,000. It earne
a. Find the contribution margin ratio.
b. Find the total fixed costs.
SOLUTION:
a. 45% ($330,000 - $150,000)/($1,400,000 - $1,000,000)
b. $300,000 [$1,000,000 x 45%) - $150,000]
9. Bennco has an average unit cost of $18.50 at a volume of 100,000

cost is $14.25.
a. Compute the variable cost per unit.
b. Compute the total fixed cost.
SOLUTION:
a. $10.00 {[($14.25 x 200,000) - ($18.50 x 100,000)]/(200,000 - 1
b. $850,000 ($2,850,000 - $10 x 200,000)
10. Parsons Company incurred $475,000 in overhead costs making 40,00

incurred $447,000 in overhead costs in September.

SOLUTION:
a. $2.80 [($475,000 - $447,000)/(40,000 - 30,000)]
b. $363,000 [$447,000 - (30,000 x $2.80), or $475,000 - (40,000 x $

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CHAPTER 3: COST ANALYSI

a 2. The major objective of preparing a scatter-diagram is to

d 3. The cost estimation method that gives the most mathematically

c 4. Which cost is most likely to be mixed for a manufacturer?

b 5. Which combination of object of cost and classification of cost

c 6. A cost is variable if it varies with the

a 8. Fixed costs that cannot be reduced within a short period of ti

b 9. Which cost is most likely to be committed?

b 11. A mixed cost

d 13. A cost-predicting equation determined through regression analy

b 14. Which of the following do JIT operations try to eliminate?

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b 18. Which statement is true for a manufacturer?

c 20. A(n) __________ relationship is one that appears to exist even

c 21. Identifying cost drivers

d 22. A cost pool is

b 23. As volume increases,

d. Fixed manufacturing overhead.

c 28. Discretionary costs

c 34. DSP Company earned $100,000 on sales of $1,000,000. It earned

b 38. Looking at the following scatter diagrams we can conclude that

a. cost A will be easier to predict than cost B.

d 41. R-squared is a measure of

d 45. Elmwood Company had $300,000 overhead cost at 40,000 machine h

b 49. Osceola Company earned $50,000 on sales of $400,000. It earned

F 1. The major variable cost in a manufacturing company is factory

F 8. A company using activity-based costing need not do regression

F 9. An r-squared of .91 with a regression equation means that pred

T 10. A multiple regression equation uses more than one driver to pr

1. Carlson Company incurred $170,000 in overhead costs making 12,000

b. Find the fixed factor of overhead cost.

a. $6 [($188,000 - $170,000)/(15,000 - 12,000)]

b. $98,000 [$170,000 - (12,000 x $6), or $188,000 - (15,000 x $6)]

Y = total maintenance cost, X = machine hours

a. Find the predicted maintenance cost at 25,000 machine hours.

b. Will maintenance cost at zero machine hours be $236,837? yes

c. About 68% of the time, maintenance cost should be within what

a. $330,900 ($236,837 + $3.7625 x 25,000)

b. No, zero is outside the relevant range.

c. $24,363, the standard error

3. Genner Company earned $125,000 on sales of $750,000. It earned $

a. Find the variable costs as a percentage of sales.

b. Find the total fixed costs.

a. 60% {1 - [($225,000 - $125,000)/($1,000,000 - $750,000)]}

b. $175,000 [$1,000,000 x (1 - 60%) - $225,000]

4. Danner has an average unit cost of $22.50 at a volume of 400,000

a. Compute the variable cost per unit.

b. Compute the total fixed cost.

a. $12.50 {[($20.50 x 500,000) - ($22.50 x 400,000)]/(500,000 - 40

b. $4,000,000 ($9,000,000 - $12.50 x 400,000)

5. Tri-County Company incurred $175,000 in overhead costs making 40,

b. Find the fixed factor of overhead cost.

a. $14 [($374,000 - $325,000)/(11,000 - 7,500)]

7. The statistician of Comstock, Inc. has developed the following pr

Y = $146,374 + $4.892X, r-squared = .86, standard error = $28

Y = total repair cost, X = machine hours

a. Find the predicted repair cost at 50,000 machine hours.

b. Will repair cost at zero machine hours be $146,374? yes no